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The prices of cryptocurrencies including Bitcoin, the most popular of the lot, have been highly volatile in recent months due to conflicting regulatory signs and rising interest rates.

Despite the massive sell-off of digital tokens, Tesla (NASDAQ:TSLA) CEO Elon Musk is among those who are still bullish on digital currencies. As such, the recently reminted $1 trillion dollar company is caught in the crosshairs of movements in the cryptocurrency market.

Bitcoin price crash

After reaching an all-time high of $67.5K in November, the price of Bitcoin is now hovering around $40K since the start of the year. The crash is partly due to remarks from the US Federal Reserve about launching its own digital currency similar to China’s e-renminbi and US President Joe Biden’s recent order directing government agencies to coordinate on a regulatory framework for digital currencies.

While the regulatory forces mentioned above have helped to suppress any upside in digital assets, the largest contributor in the price crash of Bitcoin is the about-face that Musk, and by association Tesla, pulled for its support of Bitcoin. In a way, those cryptocurrency crosshairs are attached to the rifle wielded at times by Musk and Tesla.

Tesla’s $1.5 billion Bitcoin stash

Last year, Tesla revealed that it invested a total of $1.5 billion in Bitcoin and hinted that it may acquire and hold digital assets “from time to time or long-term.” Since that announcement in February 2021, the company has had no additional Bitcoin purchases.

Tesla disclosed in its 2021 annual report that it still held around $1.26 billion worth of digital assets and incurred $101 million of impairment losses on its digital assets.

At the same time, the EV leader also reiterated its confidence in the long-term potential of digital assets both as an investment and as a liquid alternative to cash. However, the carmaker warned, in an ambiguous statement, that it may boost or reduce its digital asset holdings based on its business needs and on its view of market conditions. However, knowing Tesla dependency on Musk as its “product architect and social media manager”, as quoted by Bloomberg, the company’s position on digital currency’s may be far closer aligned with his own personal view than the above statement suggests.

Over a month after the company’s disclosure, Musk on Twitter said he still owns and “won’t sell” his own personal Bitcoin, Ethereum or Dodge holdings, stressing that “it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high.”

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What is a stock split?

To begin, it may pay to define what a stock split is: A stock split is a simple mechanism that a listed company can employ to increase the number of issued shares while keeping its market capitalisation/ valuation the same.

There are a couple of reasons a company may elect to perform a stock split, the chief among them is to increase the liquidity (or accessibility/ tradability) of their stock.

 

What happens to my shares in a stock split?

The most popular stock split ratios are 2:1, 3:2, and 3:1. By way of example, if a hypothetical company were to perform a 3-for-1 stock split, its shareholders would be issued an additional two shares for every share they owned before the split. In conjunction with the split, the value of each share would be devalued to 1/3 of its pre-split value. Effectively, the total value of three shares after the stock split should be worth the same value as one share before the stock split.

What is a reverse stock split?

A reverse stock split is when a company reduces the number of shares available while keeping its market capitalisation/ valuation the same. A company cannot simply remove shares as easily as it can issue new shares. Therefore, with a reverse stock split, a company is forced to revoke all existing shares and issue new shares, proportional to the reduction that the company is pursuing.

A primary reason a company performs a reverse stock split is to avoid being delisted from its stock exchange which may have set minimum share-price conditions on its listees.

What are some famous stock splits and reverse stock splits?

Tesla (NASDAQ: TSLA) performed a 5:1 split of its stock in August 2020. At the time, TSLA shares were trading above US $1,300. Tesla CEO Elon Musk believed the EV Company’s shares were too expensive for retail investors, so he reduced its price via a stock split.

Microsoft (NASDAQ: MSFT) has been a serial stock splitter. Since listing on the Nasdaq in 1986, The Software Company has performed nine stock splits, the last occurring in 2003. Consequently, 100 MSFT shares in 1986 would now total approximately 30,000 shares.

The beleaguered General Electric (NYSE:GE) performed a 1:8 reverse stock split in July 2021. Before the reverse stock split, GE shares were teetering around US $12. The reverse stock split meant that GE shares began trading above US $100 per share, a threshold not crossed for a very long time.

Q3 earning season is currently underway, and most high-profile companies are delivering revenue beats. Yet, Q3 revenue is not the only thing investors are watching. Investors are interested in revenue growth, customer acquisition, and pace of growth alongside the balance sheet. Inflationary and supply chain pressures that may affect the outlook of reporting companies are an additional concern for investors.

TESLA (NASDAQ: TSLA)

Reported: Wednesday, after trading
Revenue: $13.8 billion
Earnings per share: $1.86 profit per share (Non-GAAP)

Tesla's Q3, 2021 earnings were, once again, record-setting for the Company. The Company is increasing sales and has stated it is on track to "achieve 50% average annual growth in vehicle deliveries" at a time when chip shortages are hampering other automakers ability to do so. Improving gross margins (up to 30.5%) was also a significant factor in Tesla performance in Q3.

TSLA shares since earnings report:

Earnings Report TSLA

Netflix (NASDAQ: NFLX)

Reported: Tuesday, after trading
Revenue: $7.5 billion
Earnings per share: $3.19

The popularity of Netflix's series Squid Game hadn't completely filtered into the Company's finances at the time of its Q3, 2021 earnings report. Yet, Netflix delivered a favourable report, with revenue coming in on par and subscriber growth beating expectations. Squid Game IP is estimated to be worth $900 million to Netflix and should help boost its Q4 earnings, which typically get a seasonal bump anyway.

NFLX shares since earnings report:

Earnings Report NFLX

Johnson & Johnson (NYSE: JNJ)

Reported: Tuesday, before trading
Revenue: $23.3 billion
Earnings per share: $2.60

Johnson & Johnson's Q3 earnings-per-share beat expectations, with revenue climbing 10.7% from the previous corresponding period. J&J increased its (bottom-end) revenue guidance for the full year from $93.8 billion - $94.6 billion to $94.1 billion to $94.6 billion. J&J noted that its Covid vaccine would be responsible for $2.5 billion at years end and $502 million of its Q3 revenue.

JNJ shares since earnings report:

Earnings Report JNJ

Proctor and Gamble (NYSE: PG)

Reported: Tuesday, before trading
Revenue: $20.3 billion
Earnings per share: $1.61

PG beat revenue estimates, increasing sales revenue by 5% over the last quarter, but expects to fall short of 2020 revenue. The consumer goods Company also noted that rising producer costs, particularly as it relates to shipping and raw commodity prices, has already had and is going to continue to have a larger-than-anticipated effect on its earnings. In response, PG has begun raising the prices of some of its premium products as a quick remedy to help offset its rising costs.

PG shares since earnings report:

Earnings Report PG

Earning Seasons continues next week:

There are plenty more juicy earning reports due next week.

Facebook, after the bell Monday

Microsoft, Alphabet, Visa, Texas Instruments, and AMD, after the bell Tuesday

Thermo Fisher Scientific, Coca-Cola, McDonald's, and Boeing, before the bell Wednesday

Ford, after the bell Wednesday

Shopify, before the bell Thursday

 Apple, Amazon, and Starbucks after the bell Thursday

Tesla Inc (NASDAQ: TSLA) appears to have tremendous short potential still. It might pay to wait for the Company's stock to fall below $560 per share, though. On at least two occasions in 2021, buyers have been waiting at this price point to scoop up shares, significantly countering any downwards momentum. Thus, waiting for a decent break below $560 might be prudent before betting against the EV manufacturer. For the more cautious, waiting until $500 is another entry point worth considering.

YTD, Tesla shares have fallen 11.7%. For the stock to reach $560 or $500, the stock would have to fall another 13.1% and 22.4%, respectively.

TSLA

The share price has been traversing down a flattening wedge since the beginning of the year. Of course, This technical perspective is no perfect predictor of where the price is heading. Still, from a fundamental perspective, recent Tesla's PR isn't exactly helpful to for Tesla Bulls.

Can bad PR help Tesla shorts?

The issues that have recently affected Tesla include:

-  The Company's CEO, Elon Musk, said last week that he doesn't enjoy his role at the Company. Further, he believes the Company would fail if he were to step back from leading the Company, intimating that the Company's success hinges too much on his involvement

-  The above piece of hot gossip was revealed during Musk's court testimony in which he is defending Tesla's allegedly poor decision to purchase the cash-strapped SolarCity in 2016. The lawsuit's plaintiff is asking Tesla repay shareholders the $2.6B cost spent on acquiring the SolarCity.

-  Tesla has had to "recall" almost 300K vehicles in China due to safety concerns regarding its Autopilot feature. Admittedly, the recall is considered a soft recall and only involved a software update. Nevertheless, Tesla's Autopilot credentials have taken another hit. Early in July, Musk admitted that the Company has struggled to overcome the many challenges included in implementing a safe self-driving vehicle. Personally, the idea of self-driving cars always seemed a little far-fetched to me, so I never understood how the Company's was able to leverage the hype of this technology.

 

What does Michael Burry Think?

In May, Michael Burry, via his investment company, Scion Asset Management, revealed a half-a-billion short position against Tesla.

One reason that Burry is so Bearish on Tesla is that he sees a significant portion as unsustainable. Currently, Tesla pads its balance sheet by selling carbon credits to other automakers. In April, Tesla reported $518 million from the sale of carbon, equivalent to 20% of the Company's revenue for the period. Naturally, Burry sees this form of revenue drying up soon, as Tesla's competitors push into EV production themselves and require fewer credits from the EV leader.

Curiously, Tesla shares have risen 11.6% since Burry’s revelation.

Merging Lane Ahead! Why Tesla Might Have To Merge With Workhorse And Nikola Motors

Legacy car manufacturers are about to begin producing EVs in earnest. In response, I believe Tesla will have to do something drastic to meet shareholder expectations. The price of Tesla shares indicates that shareholders expect Tesla to become the dominant car manufacturer in the world.

Legacy car manufacturers pose a great risk to Tesla. For one, they are highly capitalized and already have the facilities to produce a diversified group of EVs. I suspect, the market is going to want a wider range of vehicles than Tesla currently offers.

To better compete in the near future, it would be prudent for Tesla to approach other native-EV manufacturers. Tesla would do well to consider a merger with their smaller competition. American EV companies would be the best partner for Tesla. Not only would they have a similar brand story, but the US EV industry could be strengthened as a whole. At least, it could help the country better compete with the competition coming out of China and Europe.

Read the full story at Benzinga.com

Stock of the week: Tesla (TSLA)

Tesla sells electric cars, mostly in the United States, but has recently expanded into Europe and China. Their most expensive car, the Tesla Model Y, fully loaded, sells for $124,000 US Dollars. In unprecedented times like these, where the Coronavirus Pandemic is continuing to ravage the world, is there really an appetite for electric cars?

We all have heard the insane rise Tesla has had a year to date, up 420% year to date. If you had the balls to buy Tesla stock in the middle of March, you would be up a staggering 520% this year.

420. ;)

Facebook, on the other hand, is up a minuscule 40% year to date (not actually minuscule.)

Tesla's market cap is at $417 Billion; Facebook's market cap is $835 Billion, precisely double Tesla's market cap. Here is where the fun part comes. Facebook generated over 5.2 Billion dollars in earnings last quarter, at a valuation of $835 Billion. With half the market cap, logic dictates Tesla should generate around half Facebook's earnings, right? Well, they generated $110 million.

One of the key metrics investors use to value companies is price to earnings. In a nutshell, it shows you how much it costs per $1 of revenue, ie. If a company Is 35x earnings, it costs you $35 for $1 of profit. Facebook's price to earnings ratio is around 37 times earnings. Teslas? 1,152 times. With such an extraordinary valuation, is it wise to invest in Tesla shares?

Tesla: Positive

Let's talk about the positives. For starters, they're actually generating profit! Not a lot, but at least they're not making a loss. Secondly, a more optimistic note is that they currently have over $8 Billion in cash. Not long ago, analysts were worried as to how they would pay to be able to pay down their copious amounts of debt. Thirdly, which some may consider a negative – Elon Musk is at the helm. With most of his wealth tied up in Tesla stock, plus an unwavering passion for the company (he once pledged all of his assets in the early days to save the company from going bankrupt), one may argue that the company is in good hands.

Tesla: Risks

Negatives. Is there really going to be a growing appetite for expensive electric cars in the near future? With the United States experiencing the most extensive job loss in history, my bet is on the likelihood of US consumers wanting to buy expensive electric cars at least plateauing in the near future. Secondly, that valuation. That valuation is really, really expensive. Why buy Tesla stock at 1000+ price to earnings ratio, when you can buy the Facebooks and Twitters of the world with higher growth rates a more stable business model? Tesla delivered around 91,000 cars in the last quarter. This means, on average, they profited around $1,208 per delivered car previous quarter. To match Facebook's valuation at 37 times earnings, Tesla would need to sell 2.15 million vehicles in the near future. For reference, Tesla has sold only 891,000 cars since 2012.

If it so overvalued, why are investors still plowing their money into Tesla? Well – Have you ever seen a guy wear timberlands and a Canada Goose bomber Jacket in the middle of summer? Totally impractical, probably uncomfortable. However, Drake wore his latest music video, so it's currently trending right now. That's what I believe is happening with Tesla. With retail investors nowadays having essentially no barrier to entry when it comes to investing due to fractional shares and no-fee brokerage, it is easy to see someone gain 10% in a day and try replicating it the next day the app on my phone. Retail investors have given rise to investing in a way that does not include any research whatsoever. Influence investing? I don't know – someone will come up with a term better than that.

Canada Goose jackets help against -20c weather. However, do you think many of the people who buy these $1000 jackets care? Similar to Tesla – do you believe that a 21-year-old who has some money to spare and knows nothing about investing, cares that Tesla is priced at 1,152 times earnings?

Tesla: Conclusion

So is there any place for investors here? It depends. If you're an old fashion, Warren Buffet type investor then possibly stay well away from Tesla. It is the opposite of "buying low, selling high."

What if you're just a regular investor who wants exposure to the electric car market? Tesla may still be too expensive to add to your portfolio. Something diversified like the KARS ETF, which includes stocks up and down the electric car market's distribution chain, maybe a better bet.

However, what if you believe in Tesla's business model and believe that their target audience will continue to buy their cars? Or you think that Tesla's stock price will continue to increase due to what essentially is an experiment for the "bigger fool" theory? Then Tesla might just be the stock to charge you up.