Tesla stock is an absolute beast. There is no questioning that. But before everyone gets all excited and continues to pile into Tesla stock, we have to consider everything from the current Tesla market cap to Tesla options to the Tesla PE ratio to the Tesla dividends.
The truth is, we would normally charge hundreds of dollars for this information. We are going to do something in this post that we do not normally do for free. We are going to go through everything we look at and know about Tesla stock to make an informed decision when considering a potential investment or trade.
We will be going through the exact things we here at StonyBrookSecurities look at. We will use a lot of tools and data points far before we even consider our trade.
I am going to take you through how we consider things such as:
- Tesla market cap
- Tesla stock price history
- Tesla stock chart
- Tesla volume
- Tesla options
- Tesla dividends
- Tesla pe ratio
And much more. Every single one of these bullet points will be explained through my eyes. This is going to be a rare opportunity for you to see exactly how my brain thinks. I hope new readers and current subscribers to our blog will benefit from this.
But why Tesla stock? For anyone who is living under a rock, TSLA is a company that can continue to appreciate in asset value without making a single dollar. For this reason and much more, Tesla stock continues to pop up on our radar that screams OPPORTUNITY. Let’s jump right in! After this article, you should be able to answer the question “should I buy Tesla stock?”
What is Tesla?
Tesla is an automaker, energy company, and a solar power and clean energy manufacturer founded by Markin Eberhard, Marc Tarpenning, Elon Musk, JB Straubel, and Ian Wright in 2013. While the company has many co-founders, it is always considered to by the company owned and completely operated by Elon Musk. The company specializes in lithium battery energy storage, residential solar panels (through their latest acquisition of SolarCity), and most notably electric automobiles.
For me, I see Tesla as an energy play more than anything. With the world continuing to be reliant on oil, Tesla provides much energy efficient and less expensive options for individuals.
The lithium battery to me is the big one. The ability to power the entire grid from the energy they collected from their solar panels and stored in their batteries could one day change the way the world consumes energy. I sure hope they succeed as it will provide energy sustainability, independence, and profits for shareholders (if it all works out :)).
But how do I look at all of this? I do not care. I might think Elon Musk and Tesla can save the world, but it doesn’t matter, and I don’t care about that. The way we take all of these grand plans for the company and use them to our advantage is to understand why people love the company so much and specifically why people love the stock so much.
Let’s check out how much people LOVE this stock…
Tesla Stock Price History
Want to know about the Tesla stock history? Look no further than the Tesla stock chart above which shows the Tesla stock price history from it’s IPO all the way until today. Yes, what you are seeing is not photoshopped ladies and gentlemen. We are looking at the Tesla stock history which went from $14.98 in 2011 all the way up to $312.39 where it sits now.
For those math geeks, that is a 1985.38% gain. Who’s ready to retire???
When I look at this chart, I see exactly what you see. I saw an enormous spike in the Tesla stock price history in 2013 and the thunderous up-move we have seen since the beginning of 2017.
For those who are wondering why we care about the Tesla stock history, let me explain.
I do not care about where a stock has been. I do not think knowing where a stock has been can let anyone know where a stock in going. However, it is important to get a feel for the types of moves we have seen in Tesla’s price history.
This allows us to have an understanding of the types of moves Tesla stock may make at any given time. In the first two years of being public, Tesla did not have any large moves. But beginning in 2013 and continuing today, Tesla stock has and continues to have some large moves. Looking at the history of the stock, we know that TSLA is capable of having some large moves. This is a factor that needs to be taken into account when considering the correct trade or investment down the road.
We can do this with any stock. Knowing what types of a move a stock is capable of making allows us as investors to have an understanding of what a stock is capable of. If a stock typically does not move much compared to a stock like Tesla, it opens the door to different trades and investments based on the risk/reward presented.
Again, Tesla stock is capable of making big time moves. Anyone looking at the above Tesla stock chart of interested in the stock market knows this. However, very few people take potential price movements into account when considering a trade or investment.
The goal here when looking a the Tesla stock history is the gives us every single opportunity to be successful as investors and make as much money as possible taking the smallest amount of risk. Looking at history and being able to get a feel for price movement of a stock will give us a greater chance of being successful by giving us the proper trade or investment strategies to choose from.
All of this is nice and dandy, and I am sure you have learned a lot. But, no matter what we read or see when we look at Tesla, the number one most important factor is liquidity.
Liquidity is the difference between participating in a fair market or not. Simply put, we do not ever trade or invest in any assets that are illiquid. Why might you ask? Because we do not want to have to make a trade or investment at a loss to enter the position. Let me give you an example.
Right now the XYZ is trading with a bid of $12.40 and an ask of $12.60. Remember, the bid is what someone is willing to pay, and the ask is where someone is willing to sell.
We love stock XYZ and would like to buy 1000 shares. XYZ currently has a mid price of $12.50. But the bid/ask spread $0.20 wide…do you think we will be able to buy 1000 shares at that price?
Hell no. And anyone that tells you different is either lying to you or is a financial analyst talking head who has never made a trade before.
If we want to buy 1000 shares, it is more likely we will have to pay $12.55 per share. If we do that, we will be paying $0.05 over midprice for each share, and with 1000 shares, we will be paying $50 over mid price just to enter the position.
Investing is all about continuously putting the odds of success on our side. Do we think taking a $50 loss just to enter a position puts the odds in our favor? Of course not!
This is exactly why liquidity is the single most important factor when considering making a trade or investment. We want to be able to participate in competitive markets where we can enter positions at true fair market value. $0.20 wide bid/ask spreads are not competitive thus, we will have to take losses to enter trades.
Investing is hard enough as it is. Why make it any harder? It does not matter how amazing the company or how much “potential” they may have if the stock is not liquid, we walk away. We cannot, and will not, participate in non-competitive markets.
TSLA Stock Liquidity
To understand if equity is liquid enough for us to trade, we can look at its stock and options liquidity. To see if Tesla stock is liquid enough, we need to look at the following two things:
- Stock bid/ask spread
- Stock Volume
If the stock bid/ask spread for Tesla is at the most a few cents wide, we believe the bid/ask spread is small enough where there must be liquidity. Regarding volume, we look for total stock volume in the millions. Let’s see if buying Tesla stock is a liquid play or not.
Here we can see a bid/ask spread of only a few pennies wide. We consider this liquid. If we see a bid/ask spread this distance apart, we know that there is competition for orders thus, we can have confidence we can get filled at true fair market value. Because buying Tesla stock would be a liquid option, we do not have to take an immediate loss to enter the position. This is what we want.
On to stock volume…what does Tesla stock volume look like?
There we go. Remember, we said we wanted to see volume in the millions. Tesla, fortunately, traded 5,722,294 shares today. This passes our test for stock liquidity as we saw a total notional value of $1,766,529,380.70 traded. This ranks Tesla at the very top of notional equity value which means there HAS to be large institutions involved in here to trade close to two billion dollars in one day.
Tight bid/ask spread and volume in the thousands. This tells us that Tesla stock is very liquid and a product we can go ahead and trade. However, this is only half the battle as we need Tesla options to be equally as liquid. We never trade stock without the ability to trade options to give us a better chance of making money and decrease our risk. We need TSLA options to be liquid before we can say this is a product we should even be considering. Remember, if there is not sufficient liquidity we walk away. Telsa stock is liquid enough; now we will see if Tesla options are just as great.
So…should I buy Tesla stock? We aren’t there yet…however, Tesla stock is liquid enough.
Tesla Options Liquidity
To see if Tesla options are liquid enough for us to trade, we must look at the following four factors which can all be found in the TSLA option chain.
- Volume in the thousands
- Monthly and weekly expiration cycles
- Small bid/ask spreads
- Open interest in the thousands
By examining the TSLA option chain, we will be able to see if TSLA options are liquid enough based on these four factors. Let’s dive in.
We would like to see volume in the thousands. What did we see from Tesla options today?
HELLO. Recall we wanted to see volume in the thousands. TSLA options volume shows us numbers in the tens of thousands. This is very encouraging as very few equities trade this kind of options volume.
Want to be blown away? We know every option for an equity is worth 100 shares of stock. That means that every option is worth roughly $30,871 with a Tesla stock price of $308.71. If we take the value of one option and multiply by the total volume, we get $4,202,407,488.
This much notional value screams institutional interest. Institutions never trade in illiquid products so we must be down the right path.
Next, we would like to see monthly and weekly expiration cycles. Every stock gets monthly expiration cycles, but only those stocks that have enough demand for additional expiration cycles get weekly options as well. If TSLA options were to have weekly expiration cycles, it would be because of the demand from investors. Again, this is only a good thing. What do we see?
There we go. We see monthly and weekly expiration cycles. Again, this is 100% because there is enough participation in the Tesla options market and demand for additional expiration cycles. Excellent.
Next, we can look at the TSLA option chain to see what the bid/ask spreads looks like for TSLA options. Let’s go to the monthly expiration cycles to see how small (or wide) the bid/ask spreads are.
This photograph was taken after trading hours, so the bid/ask spreads will be much wider than during the day. However, we can see that for a $300 stock, a $0.50 wide bid/ask spread is not bad, especially considering the insane amount of volume traded in Tesla options.
The last factor when looking at the Tsla option chain to see if Tesla options are liquid enough for us is to look at their open interest count. Open interest is the number of contracts currently outstanding for a specific strike price. If we see open interest count in the thousands, we can be sure that institutions are placing sizeable bets and hedging on top of their equity positions through TSLA options.
While not ever strike has open interest count in the thousands, most of them do. These numbers tell us indeed there are large institutions hedging their Tesla stock positions with Tesla options.
Thank you TSLA option chain, you have shown us the following:
- TSLA options trade in the tens of thousands of contracts per day
- The TSLA option chain has monthly and weekly expiration cycles
- Tesla options have tight bid/ask spreads
- Institutions are heavily involved in TSLA options shown by the massive amount of open interest
Telsa stock is liquid, and Tesla options are liquid. We can move forward and do whatever we would like here!
Tesla Market Cap & Tesla PE Ratio
We rarely, if ever, care about fundamentals. However, Tesla provides a unique opportunity to check out the fundamentals as they do come into play here. We are going to talk about the insane Tesla market cap and the equally as insane Tesla PE ratio. While these are not the end all be all of our decision-making processes, they are both entertaining and will provide us with some insight into how we can potentially make some money here.
The Tesla market cap it out of control. There is no other way to describe the Tesla market cap. With a current stock price of $308.71 and with 163,206,690 shares outstanding, the Tesla market cap now sits at $50,383,537,270. Wow. Not bad for a company that is pretty much subsidized by the government.
This is a nauseating chart and quite frankly screams the word “BUBBLE.” There is no other way to put it.
Elon Musk believes Tesla will sell 500,000 cars next year while General Motors, a now smaller company than Tesla, believes they will sell 10,000,000 cars.
Want to be even more blown away? Last year, Tesla sold 76,285 cars, while General Motors sold 10,000,000, and Ford sold 6,650,000. And if the Tesla market cap is larger than these two, it must mean that the value per vehicle sold is astronomically higher for Tesla than GM or Ford. How bad is it though?
This chart screams “BUBBLE” even more than the previous one that showed the Telsa market cap somehow being larger than companies that have been around for more than a century and sell millions of automobiles per year.
Again, the fundamentals don’t matter to me. However, everything revolving around the Tesla market cap, especially when compared to GM and Ford, screamed overvalued.
To make matters worse, the Tesla PE ratio is equally as bubbly. Before we get into specifically the Tesla p/e ratio, let’s look at the PE ratios of some of the most well-known companies in the world that everyone has heard of before.
How about Apple? They have a PE ratio of
17. What about Microsoft? They have a PE ratio of
30.81. What about Facebook? That is a company that is also rapidly growing like Tesla. They have a PE ratio of
40.06. Now how about our friend Mr. Tesla PE ratio? They have a PE ratio of
You read that correct. The Tesla p/e ratio is not only negative but very negative. They do not make any money as a company. The only way the Tesla p/e ratio can be so far into the negative is if they are taking a match to their cash and burning it!
Again, fundamentals are not very important to me. However, when I see the Tesla market cap at ridiculous levels, and I also see the Tesla PE ratio in another world, I start to get the feeling that the stock price as some level is overvalued. In theory, it should almost be valued of zero based on the fact that the Tesla p/e ratio is so far into the negative.
At some point, Tesla is going to have to raise a lot more capital assuming that the Tesla PE ratio remains as low as it is.
Fundamentals don’t matter unless they are this bad. Based on the crazy Tesla market cap and the equally as crazy Tesla PE ratio, we have to take a bearish stance on the company.
Tesla Dividend…Does Tesla Stock Pay Dividends?
When examining the Tesla dividends and specifically seeing if they pay a dividend, we must first understand why a company would pay a dividend in the first place.
When companies make money, they can do whatever they like with that money. Some companies prefer to reinvest that money back into the company as they believe they can further grow the company and thus, stock price, by investing in themselves.
On the other hand, there are companies out there that do not see the same value in reinvesting their profits in themselves. A lot of these companies would prefer to provide shareholder value by paying shareholders to own the stock. This is called a dividend, which is a quarterly payment to shareholders in the form of a cash debit into the shareholders’ brokerage account.
We were asking does Tesla pay dividends? Well, there are no Tesla dividends my friends. The Tesla dividend yield is zero. The Tesla dividend pays nothing because it does not exist.
Tesla is a growth company, thus, they would rather reinvest their money (it’s not profits) back into the business rather than paying Tesla dividends.
While we are pretty bearish on the stock, we do salute Tesla for not paying a Tesla dividend and having zero Tesla dividend yield. A company that just wants to continue to grow and puts their money where their mouth is is a company that wants to grow at all costs.
While we are not bullish on Tesla (clearly), the lack of a Tesla dividend does show signs that the company is focused on growth, growth, and more growth.
Should I Buy Tesla Stock?
Nope…you should not. While Tesla is a liquid product and is pro-growth (as shown by no Tesla dividend), we cannot recommend getting long a company that is not only so overly valued but at the very high end of its range.
Because of this, we do strongly believe the risk/reward sets its self up very nicely from the short side.
For those who are not readers of the StonyBrookSecurities blog, we prefer to trade options (in this case Tesla options) because they give us a better chance of making money than just trading stock (Tesla stock).
We know the following:
- Tesla is at the high end of its range
- Tesla is incredibly overvalued
- Tesla options are liquid enough to do what we want
- However, Tesla does have large moves so we need to find a defined risk trade so we don’t blow up our account
For these reasons, we believe a short call spread is a way to go.
Short Call Spread in Tesla
With the stock trading for $308.71, we are going to sell the 315/320 call spread in the May monthly expiration expiring 38 days from now.
For this, we will collect $202 and have a max loss of $298.
As shown in the photo above, we do not lose money on this trade until Tesla goes up more than about $9 from here. This type of trade gives us a little room to be correct while having a negative directional bias on the stock based on everything we have spoken about here.
Remember, before we went ahead and sold this call spread, we thoroughly vetted Tesla. We do not need to do this every time as we only need to vet a stock once. If it is liquid enough for us, we add it to out watchlist. If it is not liquid enough for us, we forget it ever existed.
Tesla is a growing company, however, it is so overvalued it’s not even funny. We feel that we can take advantage of getting short via a short call spread in Tesla. This gives us a little room to be wrong and also defined our risk. Not bad for a days work.