Monday's Big Movers: GoPro Pops, Tesla Motors Gets Burned

U.S. stocks retreated from the record high they set at the end of last week, with the benchmark S&P 500 declining 0.4% on Monday, while the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell 0.3%. The technology-heavy Nasdaq Composite Index (NASDAQINDEX: ^IXIC  ) was down 0.8%. Among the biggest movers on Monday were two high-profile growth stocks: GoPro (NASDAQ: GPRO  ) (+5.7%), and Tesla Motors (NASDAQ: TSLA  ) (-2.9%).

GoPro's first-person-viewpoint video cameras are a favorite among extreme sports enthusiasts and the stock itself has provided investors with a wild adrenaline ride since it began trading less than two weeks ago. Through today's close, GoPro shares have risen 83% from their $24 initial public offering price. Given that stunning run-up on high volume and the dearth of volatility in the broad market, today's start of trading in options on GoPro's stock was highly anticipated; oddly, however, it turned out to be a relatively sober affair.

The Wall Street Journal reported that, as of 3:20 p.m. ET, only 24,000 option contracts had traded on Monday, representing rights on some 2.4 million shares of GoPro (one call (put) option contract represents the right to buy (sell) 100 shares). By comparison, 122,000 options on Twitter's shares changed hands on the first options trading session last November. Nevertheless, today's options activity appeared to reflect a positive bent in investors'/ speculators' outlook for GoPro's stock, with calls more active than puts by a factor of 2-to-1. Calls are a right to buy shares before a fixed date at a pre-determined price; puts are a right to sell shares before a set date at pre-determined price.

It's far from clear that the nearly 6% pop in GoPro shares today is related to the launch of stock options. In any event, I'm going to continue to caution fundamentally oriented investors who are looking at the stock: I like the product and the way in which the company is building its brand and following; however, at more than 56 times forward earnings per share (per data from Bloomberg), investors are setting are setting a very high bar for the company's performance. One thing is certain, though: This adrenaline ride isn't over -- expect more volatility ahead.

Tesla gets burned
The incident involving a Tesla Model S early on July 4 had all the ingredients of "great television": the theft of the car from a Tesla showroom in Los Angeles, followed by a high-speed chase through the city that ended with a violent crash that split the car in two and set it ablaze. Great television, perhaps, but a poor reason to make an investment decision -- which didn't stop "investors" from selling down Tesla's shares today, for a near 3% decline.

The story may have revived a fear that had been stoked by the significant media attention that two Tesla Model S car fires received last year. The reality is far from alarming, however: As Tesla remarked in March, "the odds of fire in a Model S, at roughly 1 in 8,000 vehicles, are five times lower than those of an average gasoline car and, when a fire does occur, the actual combustion potential is comparatively small." Despite these numbers, Tesla went the extra mile and added a titanium underbody shield and aluminum deflector plates to the Model S to further increase the level the protection and offered to retrofit existing vehicles free of charge (General Motors, take note).

The incident that occurred over the weekend is totally immaterial to the investment case for Tesla. That's not going to stop some investors from acting on this type of trivia; meanwhile, they were never concerned by the stock's stratospheric valuation -- at 70 times estimated 2015 earnings-per-share, it remains a genuine potential threat.

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  • Report this Comment On July 07, 2014, at 9:54 PM, Protocola wrote:

    If the Tesla Model S was equipped w/Go Pro Hero 3 we could have seen some real "action" footage instead of just plain old "aftermath" footage on all the news reels! ☺

  • Report this Comment On July 07, 2014, at 11:56 PM, jaxgab wrote:

    Many of the momentum stocks were down today, including Tesla.

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