Elon Musk’s Twitter deal puts increased pressure on Tesla stock (NASDAQ: TSLA) and its shareholders, as the automaker’s price per share continues to spiral downward after losing nearly 13 percent of its value this week.
Analysts are trying to decipher where Tesla’s long-term outlook points because of the deal, as short-term pressure is being applied due to Musk’s imminent stock sale, which will fund his portion of the Twitter merger deal.
Despite Tesla’s positive Earnings Report from last week, which detailed its best automotive operating margin and delivery figures in a single quarter, the automaker is still sparing with a selloff of its stock from investors. Just three hours into Thursday’s session, trading volume on Tesla shares had reached its daily average of 24.7 million shares, changing hands every day.
At the time of writing, Tesla shares were trading around $887, up less than 1 percent. In mid-March, shares traded around this level but rebounded later, crossing levels as high as $1,140 in early April.
Analysts appear to be sympathetic with Tesla shareholders, who believe the Twitter transaction is placing an overhang on the company’s name. Dan Ives of Wedbush said the deal, which stands to increase Musk’s collateral to debt ratio, is “way overdone.”
“It’s a frustrating situation now for Tesla investors as the nature of equity financing around the Twitter transaction putting an overhang on name,” Ives said. “As we have discussed, investor worries about the sale of stock down the road for Musk; increased collateral/debt – we believe way overdone.”
The problem with Tesla’s share price spiraling downward is that it is not founded on the company’s fundamentals or its mission. Instead, the pressure comes from Musk’s leverage against his holdings. Musk has so much money he can essentially play the role of a private equity firm, according to a Bloomberg report. Roughly 72 percent of the financing package to fund the deal will come from Musk or in the form of cash he will borrow by pledging Tesla shares. The only way to avoid this is by finding an actual private equity firm or a group of other investors who would join as partners.
Disclosure: Joey Klender is a TSLA Shareholder.
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