The stock market looked ugly on Tuesday afternoon, with the major indices registering steep declines in the wake of President Donald Trump's speech to the United Nations.


Change at 12:50 p.m. EDT

Dow Jones Industrial Average (DJINDICES:^DJI)




Nasdaq Composite (NASDAQINDEX:^IXIC)


Data source: Yahoo! Finance.

Heading lower along with the market were Tesla (NASDAQ:TSLA) and Roku (NASDAQ:ROKU). The electric-car maker was hit by new lawsuit details that painted a disturbing picture, while shares of the streaming-device company continued their multiweek collapse.

Tesla lawsuit details emerge

Shares of electric car manufacturer Tesla were down 6.8% at 12:50 p.m. EDT Tuesday. While the stock is normally volatile, the decline may be partly due to developments in the lawsuit regarding Tesla's acquisition of SolarCity.

Court documents unsealed on Monday revealed the arguments against the company. The documents claim that Tesla CEO Elon Musk pushed investors to approve the acquisition of SolarCity in 2016 at a large premium, even though he had ostensibly recused himself from being involved in the deal. Musk was also aware that SolarCity was facing a cash crunch, according to the filing.

A row of Tesla's Powerpack batteries

Tesla Powerpack batteries. Image source: Tesla.

The filing also claims that SolarCity was insolvent soon after the closing of the $2.6 billion deal. The acquisition was proposed by Musk despite SolarCity telling its board of directors in early 2016 that its cash balances were expected to drop below a level required for a line of credit, according to the filing.

The acquisition of SolarCity has not worked out well for Tesla. At the time of the deal, SolarCity was the largest residential solar installer in the U.S. Since then, the pace of installations has plunged as the company moved to an online sales model.

With Tesla still posting big losses as the auto industry girds for a downturn, this lawsuit is the last thing the company needs.

Roku's collapse continues

Rapid-fire revenue growth turned Roku stock into a rocket ship this year. Shares soared from around $30 in early 2019 to a high of around $170 earlier this month. At its peak, Roku was worth close to $20 billion.

In the past few weeks, that euphoria has vanished. Including Tuesday's slump, Roku stock is down nearly 40% since early September. This has truly been a case of taking the stairs up, and the elevator down: By 12:50 p.m. EDT Tuesday, shares of Roku were down 4% on the day.

Even after crashing over the past few weeks, Roku remains an expensive stock. Based on the midpoint of the company's full-year revenue guidance range, shares are currently trading for 11 times sales. Roku expects to post a net loss this year.

Roku's hardware is popular, and revenue from its platform is growing at a breakneck pace. But judging by the stock's performance this month, the valuation got way out ahead of the fundamentals. And with Roku still priced for perfection, the pain may just be getting started.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.