Elon Musk and Tesla (NASDAQ: TSLA) had a big week this week. Not only did Musk reach a settlement with the Security and Exchange Commission over his miscalculated “going private” tweet back in early August, he also went shopping for more Tesla shares, raising the usual questions over the number of buybacks he’s made this year, and the timing of those buybacks.
Musk’s intentions remain elusive, but we as traders still need to sort through the facts and set a course of action, regardless of the regular soap opera that is Tesla and Elon Musk.
We wanted to provide some background over Musk’s buybacks as well as the events of this week, and show you what’s really going on as well as what numbers to watch out for to determine whether Tesla stock is worth the ride.
Some Background to the Buybacks
On Tuesday Elon Musk reached a settlement with the SEC regarding a tweet he made about taking Tesla private. Musk was fined $20 million, forced to step down as Tesla’s chairman for at least three years, and has to have some poor, unfortunate soul babysit his social media accounts until the End of Days, or whenever Musk steps down as CEO.
That settlement was casting a dark shadow over Tesla’s future, and having it behind the company is a step in the right direction, at least according to the bullish investors that rallied upon hearing the news.
Also on Tuesday, filed into the SEC report, was a note that Musk would purchase another $20 million in common stock from Tesla. This is the third buyback Musk has made this year. He also purchased $9.9 million worth of shares in May, and another $24 million worth of shares in June, according to our analysts.
After this most recent purchase, Musk will own roughly $9 billion in Tesla common stock, or some 35 million shares. That’s a huge number, but Musk certainly isn’t the first CEO to be the predominant shareholder of his own company. Jeff Bezos for instance owns some $68 billion in Amazon common stock. Facebook’s Mark Zuckerberg, meanwhile, has Facebook shares worth around $64 billion.
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What’s the Market’s Response to All This?
Like Elon Musk himself, it’s complicated.
Tesla stock on Tuesday responded jubilantly to the news of the deal struck by Musk and the SEC along with news of Musk’s buybacks, which were mentioned in Tuesday’s 8-K filing form.
But the bears responded with equal ferocity the next day, dragging Tesla stock down 3.76% and almost erasing Tuesday’s gains.
It helps that Tesla is hovering around key support at $244.59, which was originally major resistance between 2014 and 2016. If Musk can refrain from drawing the attention of the SEC, and make good on some of his promises, this support looks likely to hold.
But then again, it’s Tesla and Elon Musk. This could all change at a moment’s notice, or a salacious tweet from the company’s controversial CEO.
Do the Buybacks Mean Anything?
Elon Musk could generate headlines by spreading cream cheese on a plain bagel. Not to mention the volatility of the stock and the tenacity of its bullish and bearish speculators are legendary. It’s very easy to get emotional over Tesla stock, so it’s very important to take a step back and look at the facts over the last week.
Here’s the bottom line on those buybacks:
Musk’s total Tesla shares at today’s prices hovers around $10 billion. His $20 million in buybacks is just 0.22% of his total holdings in Tesla stock. That’s the equivalent of sinking another $2.20 into a $1,000 investment. It isn’t terribly significant overall, for either the market or for Musk.
And it isn’t a coincidence that he was fined $20 million dollars by the SEC – the same amount he’s buying back in Tesla stock.
Whether he’s doubling down with a display of confidence in the company, or he’s performing some kind of internal penitence, we have yet to see.
What we do know, however, is that Musk has made a handful of small (small for him, anyway) buybacks throughout the year. Considering that Tesla shares are down 10% in 2018, perhaps Musk’s buybacks are attempts at keeping the hopes of stockholders alive during a time of major C-suite turnover, production woes, and antics by Musk himself.
Whatever his intentions, Musk may finally be on the path to maturity – which might boost share prices more than stock buybacks ever could.