Why Are People Buying TSLA Shares?

Shares of Tesla shot up to $255.06 during today's afternoon trading session -- an increase of 4.1% that brings the stock 6.35% over its average analyst target price of $239.82. This may imply limited upside for the Auto Manufacturers stock, whose analysts give it a consensus rating of hold, and target prices spanning from $24.33 to $350.0 dollars per share.

The market sentiment on the stock is decidedly optimistic, since Tesla has a short interest of only 3.0%. This is the percentage of the share float that is being shorted. Each short position represents an investor's expectation that the price of the stock will decrease in the future.

Short selling involves borrowing shares and then selling them at current market prices. In the successful version of the strategy, the shares are purchased at a lower price at some time in the future. The investor then returns the shares to the lender, and keeps the profit made on the sell/buy transaction.

We can make inferences about the market sentiment surrounding Tesla by analyzing its rate of institutional ownership. If institutions such as hedge funds and pension funds are the primary shareholders of a corporation, it most likely means that its shares are a good investment according to those institutions' analysts.

At 44.2%, the rate of institutional ownership is average, indicating that a sufficient number of institutions have concluded that it is a stable investment. Beware, however, that the rate of institutional ownership could also indicate an ongoing proxy battle or takeover attempt -- so you should also periodically check the news about a stock whose institutional ownership you are tracking.

Overall, there is mixed market sentiment on Tesla because its an analyst consensus of little upside potential, a hold rating, an average amount of shares sold short, and only a small number of institutional investors. Warren Buffett famously said that in the short term, markets are voting mechanisms, but in the long term, they are weighing mechanisms. This means that long term investors should be aware of a stock's fundamentals before committing.

Buffett was one of the fist investors to focus on free cash flow as a yardstick for a company's health. Here are TSLA's recent cash flows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023-01-31 14,724,000 -7,172,000 21,896,000 21.57
2022-02-07 11,497,000 -6,514,000 18,011,000 96.09
2021-02-08 5,943,000 -3,242,000 9,185,000 139.07
2020-04-28 2,405,000 -1,437,000 3,842,000 -13.02
2019-02-19 2,098,000 -2,319,000 4,417,000 9.86
2018-02-23 -60,654 -4,081,354 4,020,700
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.