“We increasingly live in a trader’s world as opposed to an investor’s world, and Tesla is a poster-child of that,” said David Trainer, founder of New Constructs research firm.
Retail investors’ devotion to Tesla predates the company’s arrival to the S&P 500, with thousands of early backers committing their savings accounts to Musk’s vision of an all-electric vehicle world.
Excitement around the stock is on display across social media platforms and chatrooms daily. Musk himself turned to Twitter on November 6 before embarking on a share selling spree to ask users whether he should offload part of his stake in the carmaker. The response? “Yes”.
Tesla’s spokesperson didn’t return a request for comment about volatility in the company’s shares.
While Musk’s zaniness is often embraced by the retail crowd, such unpredictable moves are new for institutional managers and investors that buy blue-chip stocks. Still, some analysts see an upshot to the persistent volatility of Tesla, currently the fifth-biggest stock in the S&P and the world’s biggest automaker by market capitalisation.
Its inclusion in the index led to more “open-mindedness” among traders about volatile stocks that offer faster growth and strong returns, said Matt Weller, global head of market research at Forex.com.
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Analysts expect the volatility in Tesla to continue. After all, a gauge of expected one-month volatility in the electric-vehicle maker hovers in the 83rd percentile of its readings going back a decade ago.
While there are varying views on Wall Street as to whether its shares are a buy, hold or sell, on average analysts expect the stock to be at $US845 in12 months from now, a 6 per cent decline from its closing price on Monday.
Tesla posted its ninth straight quarter of profits in the three months through September, solidifying the stock’s rally and propelling it to new highs. The share advance has also left some sell-side analysts wondering if the rally left the shares overvalued.
But retail investors, who have shown an appetite for risk and a capacity to weather swings in valuation, are likely to extend their links to the company and its stock — regardless of what the Wall Street establishment thinks.
“At the end of the day, having stocks that move in different ways in response to different catalysts is really what brings the diversity that indexes seek to offer,” Forex.com’s Weller said.
“Indexes of the future won’t just consist exclusively of the old-school, conservative CEOs.”
Bloomberg
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