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Retail stock traders who have helped shares of Tesla (TSLA) climb +56% this year are showing signs of fatigue and have pulled back on their purchases of the stock. According to data from Vanda Research, net daily purchases of Tesla shares by individuals have fallen by about 75% as of Wednesday from a peak of $436 million on March 1. In addition, retail investors were net sellers of Tesla stock on Tuesday for the first time in nearly a year.
In a sharp reversal of this year’s rally where retail investors bought shares of Tesla aggressively, enthusiasm for the stock had waned since March 1 when Tesla sponsored its investor day conference. Since that investor day conference, shares of Tesla have fallen -6.6% compared with a -0.5% decline in the S&P 500 ($SPX) (SPY) and a +5.7% rally in the Nasdaq 100 Stock Index ($IUXX) (QQQ).
Shares of Tesla came under pressure on disappointment that the company’s investor day conference failed to provide any fresh details about the company’s new vehicle lineup. Finimize Ltd, an investment advice platform owned by Abdrn Plc, said, “after a brief period when Tesla’s stock price looked to be offering decent value, the shares seem to be back in the realm of expensive, and retail investors have stepped back.”
The recent problems in the banking sector have sparked caution among retail stock investors who have fled stocks and moved into the safety of cash. Also, Tesla’s high valuation is another factor weighing on investor sentiment. Tesla trades at 44 times forward earnings compared with mid-to-high single-digit multiples for General Motors (GM) and Ford Motor (F), and even above the Nasdaq 100’s average price-to-earnings ratio of 24.
Some analysts have also turned more cautious about Tesla, with three downgrades of the stock this month. Berenberg cut its recommendation on Tesla to hold from buy and said the company’s “valuation now leaves less room for disappointment.” However, Tesla’s Q1 delivery figures, due early next month, could turn market sentiment quickly, especially if the numbers show the big price cuts instituted in early January led to an uptick in sales. That would also highlight a key advantage Tesla has over its rivals, who followed Tesla’s cuts by lowering their prices. First American Trust said, “since Tesla has higher gross margins to begin with, the margins at competitors are more at risk.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
