Tesla Inc. Shares fell again on Wednesday after the electric vehicle maker announced that one of its largest shareholders had sold part of the shares, although the sale was actually just a rebalancing as the value of the stake actually increased.
What may upset investors is that this disclosure came the day after the company itself announced it would sell up to $ 5 billion in shares. Separately, although BofA Securities analyst John Murphy raised his price target, implying a nearly 30% gain from current levels, he did not recommend buying the stock.
Tesla TSLA Shares,
-6.15%
The stock fell 7.5% in active daytime trading, the largest one-day decline since May 1. The stock has dropped 12% since it closed at a record $ 498.32 on Monday, when the 5-to-1 split took effect.
Many on Wall Street call a 10% to 20% decline from a significant peak a correction, while a decline of 20% or more is defined as a bear market. A close below $ 448.49 would make the correction “official”, and a close at $ 398.56 or below would mean a bear market.
Meanwhile, since the beginning of the year, shares are still up fivefold (up 425%), while the S&P 500 SPX
+ 1.65%
added 10%.
Also read: Only 19% of Tesla analysts say they buy stocks while investors are “insatiable”.
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“It is important to understand that the higher the upward spiral [Tesla’s] shares, cheaper capital becomes to finance growth, which is then rewarded by investors with a higher share price. ”
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Tesla revealed in SC-13G / A filing with the Securities and Exchange Commission that the Scotland-based Baillie Gifford & Co. reduced its stake to 39.63 million shares, or 4.25%. As a result, the 112-year-old investment company will drop to fourth on the list of Tesla’s largest shareholders.
Bailey Gifford previously disclosed 58.86 million shares as of June 30, or 6.32% of the outstanding shares, according to FactSet. This made Bailey the second-largest shareholder after 18.3% of shares held only by CEO Elon Musk.
Based on Tuesday’s closing price of $ 475.05, the approximately 19.23 million shares sold by Bailey Gifford would be valued at approximately $ 9.14 billion.
Bailey Gifford said she sold the shares in accordance with internal directives that limit the percentage of a portfolio that can be invested in a single share. report in The Wall Street Journal…
As of June 30, Tesla Bailey’s stake was estimated at approximately $ 12.7 billion. As of Tuesday’s closing price, which was 120% higher than the June 30 closing price of $ 215.96, the value of the diminished share increased 48% to $ 18.8 billion.
Bailey said he remains optimistic about Tesla’s future and will buy shares again if sold, the WSJ said in a report.
Don’t buy stocks, even if they may rise 25%
BofA’s Murphy raised his target price for the stock to $ 550, implying a 25% gain from current levels, from $ 350, citing the logic of the electric car maker’s bulls that a rise in the share price generates a rise in the share price. Meanwhile, Murphy has reaffirmed the neutral rating he has had on the stock since Aug. 14, reflecting his skepticism about the company’s fundamentals and opportunities.
Murphy said that Tesla’s announcement of the stock sale on Tuesday confirmed his view that Tesla would take advantage of the rally to raise “cheap equity capital” to fund accelerated growth.
“It is important to understand that the higher the upward spiral [Tesla’s] stocks go, cheaper capital becomes to fund growth, which is then rewarded by investors with a higher share price, ”Murphy wrote in a note to clients.
However, he warned that the opposite of this logic is also true: the lower the stock price, the lower it can fall.
Murphy said that it is this “self-fulfilling structure” that seems to explain the extreme movements of stocks, both upward and downward.
