Tesla : Warming up for a bull run

Shares of electric-car maker Tesla (NASDAQ: TSLA) rose sharply on Thursday.

The stock ended the trading day up 5.3%, trading at nearly $656 beating the prediction of a senior executive at JP Morgan who had said a week back that the Tesla stock is “in our view and by virtually every conventional metric not only overvalued but dramatically so”.

The growth stock’s gain was likely caused by a combination of an overall bullish day in the stock market and S&P Global’s move to increase its credit rating on the automaker’s debt.

Ahead of S&P Global’s move next week to include Tesla stock in the S&P 500 for the first time, S&P Global changed its rating of Tesla’s debt to BB, up from BB-. S&P Global noted that the company’s “mounting liquidity has substantially reduced its financial risk.”

This news follows Tesla’s recent capital raise. Earlier this month, Tesla entered into an agreement to issue up to $5 billion worth of common stock. This would bolster Tesla’s cash position by an impressive 34%.

Also likely helping the stock on Thursday was the market’s big move higher. Highlighting optimism in the market, the S&P 500 rose 0.6% to a record high.

Giving his Tesla long-term stock predictions, when the TSLA stock was trading at a high of  $800-$900 in early June, Ron Baron is an American mutual fund manager, investor and  the founder of Baron Capital, an investment management firm has said: “Tesla, that’s going to be $2,000 or $3,000 in five years and a multiple of that over the next five years.”

Tesla has never declared dividends on its stock and all future earnings are determined to finance future growth.

The automaker’s shares have surged more than 660% in 2020 despite the pandemic fueled slowdown posting strong earnings, analyst upgrades, and overwhelming investor optimism.

The company’s addition to the benchmark index on December 21 is the latest driver for its mammoth rally.

The challenge ahead is that Tesla meets its full-year guidance for 500,000 deliveries in the coming times and that it continues to provide evidence of a long term growth journey in the coming years.