Kathy Wood is loading up on Tesla shares as Elon Musk sells

Tesla (NASDAQ:TSLA) is one of the largest electric vehicle manufacturers in the world and also has some smaller tech operations. Founded by Martin Eberhard and Mark Tarpenning in 2003 and bought by Elon Musk in 2004 (Musk technically bought the “founder” title as part of his deal to fund the then-startup), the company nearly went bankrupt by 2018 before it could finally bring it to profitability, and as a result of this The positive development, the growing popularity of electric vehicles globally, and the stock market bubble driven by the Covid virus, saw its share price increase by more than 1000% between March 2020 and November 2021.

However, since that point, Teslas share price has gradually declined and is now down 61% from its all-time high. In fact, it is now trading at a 52-week low. Personally, I think the market is overreacting, because investors are selling stocks despite the strong financial reports that have been reported. Katherine Wood (Trades, Portfolio) of Ark Invest seems to think the same, as she recently acquired more Tesla shares. However, around the same time, Musk was selling stocks. Insider selling stocks isn’t usually a very big deal, but the huge amounts of stock Musk is getting rid of is very unusual and raises a red flag. Who should investors follow – Wood or Musk?

Musk sells Tesla

A recent SEC Form 4 filing showed that Musk sold approximately 22 million shares of Tesla at an estimated value of $3.6 billion. Musk executed the trades between Monday, December 12th and Wednesday, December 14th. These shares were sold at an average share price between $153 per share and $176 per share.

This disposal of Tesla shares came as a shock to many Tesla investors who did not pay attention to the news. Musks’ year-to-date sales of Tesla stock have totaled $23 billion; You can see more of Musk and other stock insiders’ trading history on Tesla’s GuruFocus Insider Trades page.

However, for those who have been paying attention to the news, the reason for the sale is quite clear: Musks’ $44 billion purchase of Twitter, a cash-burning company, is literally a hole in his pocket. Musk put $20 billion of his own money up front to buy Twitter, but since most of his wealth has always been wrapped up in Tesla stock, he’s had to take on debt for the rest. In a recent tweet he wrote, “Beware of Debt in Troubled Macroeconomic Conditions, Especially When the Fed Continues to Raise Interest Rates,” which shows that debt is weighing down.

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Whatever you think of Musk’s efforts to transform Twitter, there’s no denying that he’s not doing it in a profitable way. Plus, while he spends the vast majority of his time on Twitter, who runs Tesla? In fact, according to a report from Reuters, some Tesla insiders are claiming that Musk has been looking for a new CEO to head the EV company in recent months and may even have identified a potential successor. Musk himself has also said he “didn’t want to be the CEO of any company,” so it’s possible he might step down from Twitter as well.

Wood buys a Tesla

On Dec. 14, Wood’s Ark Invest purchased 74,862 shares of Tesla at an average price of $156.80 per share, according to Ark’s daily trading data. These shares have been split among several active ETFs at Ark Invests. Its flagship Ark Innovation ETF (ARKK) purchased 61,537 shares, Ark Robotics ETF (ARKQ) purchased 10,066 shares, and Next Generation Internet ETF (ARKW) purchased 3,259 shares.

Historically, the Ark Innovation ETF has seen Tesla as its largest position, making up 10% of its fund in 2020, so the company has benefited from a huge amount of growth in the stock. At the time of writing, Tesla stock makes up a 7% stake and is the third largest stake in the fund with a market capitalization of just over half a billion after the recent declines in share prices.

Growing finances

Tesla continued to deliver strong financial results despite the difficult economic conditions. In the third quarter of 2022, the company reported $21.45 billion in revenue, which increased 56% year-over-year. Deliveries increased at a rapid rate of 42% year-over-year to 343,830 vehicles.

Production ramped up, with Model Y production exceeding 3,000 builds per week at the Giga Texas facility. In the third quarter, total production increased 54% year-over-year to 365,923 vehicles.

In terms of profitability, Tesla increased its operating margin by 262 basis points to 17.2%, which is great considering the average auto industry margin is around 9%. Tesla has been criticized in the past for overvaluing the automaker, but its margins support the company’s claim that it should be valued as a technology company. Earnings per share were $0.95, which increased 98% year-over-year and beat analyst estimates by $0.06.

Tesla has also continued to continually innovate its business, from creating the world’s largest metal press, gigapress, to efforts to develop self-driving vehicles. Self-driving technology continues to improve, and full self-driving beta technology is being rolled out as more drivers sign up. Self-driving vehicles could disrupt a range of industries from ride-sharing to the rail industry.

On Artificial Intelligence Day, Tesla also unveiled its Optimus humanoid robot prototype, which could also generate huge revenue in the future as this technology is adopted in homes and manufacturing facilities.

Tesla has a strong balance sheet of $21.1 billion in cash and short-term investments compared to just $1.4 billion in long-term debt.

Evaluation

Tesla has always been known as an overvalued stock, but now it seems to be steadily growing that valuation. The stock is trading at a price-to-sale ratio of 5.98, which is 25% cheaper than its five-year average. This is in a similar assessment to early 2020.

The GF value chart indicates a fair value of $398 per share based on historical valuations, capital gains, and analyst estimates of future business performance, making the stock undervalued at the time of writing.

Final thoughts

I think Tesla is a great company, and it continues to deliver strong financial results despite the economic uncertainty. Given the Twitter fiasco, I think it’s more likely that Musk will sell Tesla to help fund Twitter, although this is just speculation since Musk himself hasn’t confirmed his reasons. Lumber has been buying downhill, which is another encouraging sign. I think Tesla investors would like to see Musk focus more on Tesla. There could be a “major risk” in the market if Musk continues to neglect Tesla or even steps down as CEO of Tesla.

This article first appeared on GuruFocus.