Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why I Am Not Buying Tesla Motors Inc (TSLA): Hedge Fund Manager

Tesla Motors Inc (NASDAQ:TSLA) has certainly become the darling of the auto industry, the alternative-fuel industry and even the tech industry with its innovations. And with being such a darling in so many areas, CEO Elon Musk has guided the company’s stock into the stratosphere in 2013, as the stock at one point was above $150 a share Thursday after the company reported better-than-expected earnings Wednesday night in its quarterly report.

But is the stock finally overvalued? Or is this like what Reed Hastings did with Netflix, Inc. (NASDAQ:NFLX) or Jeff Bezos of, Inc. (NASDAQ:AMZN); the current run is just the start of a climb to the “correct” valuation?

Well, it seems interesting that we would dare mention Amazon. There is a fund manager who went on record recently to make a comparison of Tesla Motors Inc (NASDAQ:TSLA) and the e-commerce giant.

Tesla Motors Inc (NASDAQ:TSLA), Netflix Inc (NASDAQ:NFLX), Inc. (NASDAQ:AMZN)Tesla Motors Inc (NASDAQ:TSLA): Words from a Bear

Steven Kiel, fund manager of Arquitos Capital Management in Annandale, Va., sent out a note to investors recently, and Kiel gave his assessment of Tesla. He basically stated that now is not the time to be buying what Musk is selling.

Arquitos Capital Management is a hedge fund, by the way, with a minimum initial investment of $100,000 to participate.

In the investor’s note, Kiel wrote, “As much as I respect the dynamic nature of companies like Tesla and Amazon, you won’t find me making up a reason to “invest” in them at their current prices. When the crowds are exuberant, the market price of companies like that can go to the moon. Those investors will then be crushed when the public mood overshoots to gloom and despair, which it will. Amazon is certainly a better company than, say, Winland Electronics. It is not a safer investment.”

Kiel wasn’t done with his skepticism of Tesla, especially at the current level of valuation. “In good times, investors are often drawn to companies with rich valuations who have dynamic leaders and extreme growth prospects.

“The stocks of those companies,” Kiel said, “like Tesla for example, can quickly fly. Tesla’s stock has gone up more than 350% this year. The problem is when sentiment turns. Amazon traded above $90 in 1999, and less than two years later it was below $7.”

The Tesla vs. Comparison

Kiel sees some similarities with Tesla Motors Inc (NASDAQ:TSLA) and its current rise with the early days of, Inc. (NASDAQ:AMZN), when that stock had violent mood swings, until investors and analysts could generate a more accurate valuation.

“I love Elon Musk and I think Tesla is an exciting company,” the hedge fund manager stated, “but if you were to buy it today the only way you could make money over the long term is if the company has incredible operational performance for a long time.

“That’s possible. However, you could lose a lot of money if their operational performance is just good, and not spectacular. You could lose a lot of money if nothing changes in their operations, but investor sentiment changes. And, you could really lose a lot of money if their operational performance worsens because both sentiment and performance will decline.

“So you have one way to make money, and three ways to potentially lose a lot of money. I don’t see the attraction other than simply hope, or wanting to tell your friends that you own Tesla stock.”

How do you see fund manager D.E. Shaw feeling about Tesla Motors Inc (NASDAQ:TSLA) after this run? Shaw doubled  his investment in Tesla stock in the March quarter of 2013 over what he owned in December of 2012.

Would you sell now, or ride it our longer because of the most recent earnings report? While you contemplate your answer for the comments section below, take a look at this video that shows how the Tesla Model S is made.


DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.