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Is It Time To Buy The Tesla Bounce?

Tesla

I last wrote here about Tesla (TSLA) on March 1st. Back then, after the company announced cuts to sales and marketing staff, I said that investors should take that, and the market’s reaction to it, as a warning and sell the stock. Now, two months later, and twenty percent lower, Tesla is once again doing its trick of defying logic, but don’t be fooled. The “good news” that has caused a small bounce in TSLA is anything but.

Under normal circumstances, when a company issues stock and/or takes on additional debt, the stock price, logically enough, drops. Selling stock dilutes the value of existing holdings, and debt has to be serviced, which hurts cash flow, and at some point, repaid. However, nothing to do with Tesla ever comes under the heading of “normal circumstances”.

On Thursday morning, Elon Musk announced that, even though he had said just a few months ago that Tesla was done with raising capital, they would be offering $650 million in common stock and $1.35 billion in convertible senior notes due in 2024. As mentioned, the logical reaction to that news would be a slight decline in the stock, but instead, TSLA did this…

(Click to enlarge)

The only explanation for that is that there was a sense of relief that the company had raised some more money, but if you think about it, that is a terrible reason to buy the stock. If the raising of a couple of billion dollars causes so much relief that even the diluted stock becomes worth more, what does…





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