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By David Wagner
Investing.com - Tesla Inc. (NASDAQ :) stocks jumped again yesterday, closing up 4.78% to $ 804, the second daily close above $ 800 in the stock's history.
The rise in stocks follows the announcement that the company has decided to raise capital by issuing $ 2 billion in new shares. And although this transaction mathematically dilutes the value of Tesla shares, it will improve its financial situation, which is still worrying for some.
Wedbush analyst Daniel Ives on Tesla's announcement said the capital increase is a "smart decision", positioning the company to take better advantage of growth opportunities.
Specifically, Tesla said on Thursday that it plans to raise approximately $ 2 to $ 2,3 billion as part of a common stock offer. The cash will be used to strengthen the company's balance sheet and for general needs, said management.
Interestingly, management previously felt that a capital increase would not make sense because the company believed it had enough cash on hand and enough cash flow from operations to finance both operations growth investments.
But ultimately, the important thing for Tesla investors is that the market has welcomed the news.
However, does that mean that Tesla will resume its flight, after having generally hesitated since its historic intraday ($ 968) and closing ($ 887) summits of February 4?
There are several reasons to doubt it.
In the long term, Tesla should certainly continue to do prowess. However, there are factors suggesting that investors should consider being cautious in the short term. Given the recent sharp rise, a significant correction phase could be envisaged before the title regains favor with buyers.
This is all the more true since we can identify at least several keys which call for caution:
The profit history is unstable, and the valuation is high
For 2020, the average earnings estimate is $ 6,15 per share. However, analysts' individual forecasts range from $ 3,38 per share to $ 14,79 per share, a deviation which testifies to the uncertainty that traditionally surrounds the company's results, which have surprised both positively and negatively at during Tesla's history.
Tesla has indeed oscillated between profit and loss for much of its recent history. This earnings volatility has sometimes deeply affected Tesla's stock. Still, Tesla rose more than 260% from its 52-week low last May when the stock fell to $ 177 a share.
The rise in the share price and the profit forecasts also lead us to discuss the valuation ratios.
The forward price-to-earnings ratio is just above 50. In the third quarter of 2019, the average P / E ratio of was 22,4, which makes Tesla's current multiple appear high.
In this regard, it should be noted that Tesla has often been cited as one of the best selling stocks short. This means that many sellers have suffered heavy losses during the recent rise in the stock, and have probably closed the positions (which probably also fueled the recent rise).
This means that once they have healed their wounds, they will constitute a large pool of sellers ready to come back against Tesla in the market, since it is very likely that the sharp rise in recent months, which seems to some Exaggerated analysts, above all represents in their eyes a downside potential that is waiting to be realized.
Tesla is not immune to another madness by Elon Musk
CEO Elon Musk is a creative genius. He helped create the electric car market by operating a technology that some thought was economically impractical.
The flip side is that its escapades have often disrupted investors and have resulted in SEC sanctions. In 2018, the US stock market policeman fined Musk and the company after he pretended on Twitter (NYSE :) that he intended to privatize Tesla, before backing down, causing the passage of important movements of the action.
In addition, the test that recently shattered the tempered glass pane of Tesla's Cybertruck prototype in full live shows that Elon Musk is not foolproof, and an accumulation of problems of this type could also largely weigh on the action.