Tesla Stock Rallies As Elon Musk Completes The Sale Of A 10% Stake In The Company
Shares of Tesla gained strong upside momentum after Elon Musk said that he had completed the sale of a 10% stake in the company.
In addition to the natural selling pressure that occurs when a material stake is sold, Musk’s share sale had a negative impact on traders’ mood. As a result, Tesla stock declined from the all-time high levels near $1245 to the recent lows near $885.
The pullback was significant, but the stock quickly gained upside momentum and moved back towards the psychologically important $1,000 level.
What’s Next For Tesla Stock?
Musk’s stock sale was a significant negative catalyst for Tesla stock, and it’s not surprising to see that traders are happy to see that this catalyst has been finally removed.
It should be noted that analyst estimates have continued to move higher in recent weeks. Currently, Tesla is expected to report earnings of $6.07 per share in 2021 and $8.25 per share in 2022, so the stock is trading at roughly 120 forward P/E.
The market is used to Tesla’s rich valuation, so the exact number of the forward P/E multiple has little if any impact on the dynamics of Tesla shares. Now that Musk’s stock sales are no longer a problem, the main risk for Tesla stock is the Fed policy which may lead to higher rates and put pressure on high-growth stocks.
The market has already become more sensitive to any bad news from highly-valued companies. In a recent example, Adobe stock found itself under strong pressure after the company presented disappointing guidance. Tesla’s recent earnings reports exceeded analyst estimates, but a company does not have much room for error when its stock is trading at 120 forward P/E. While the investor community is very loyal to Tesla, the company will have to show strong growth in the upcoming quarters to justify its rich valuation.