Paddy Mack

Of the about 373m people that live in North America, about 50.3% are members of Facebook; 1 in every 7 humans on the planet have accounts. Without revolutionary ways to monetize the user base, Facebook needs more members to drive earnings and with such unimaginable penetration that's unrealistic.

I really like Facebook. I'm addicted. I understand that I share bits of me and that provides marketing opportunities for brands trying to target specific user groups or demographics. I'm not upset at magazines for running ads in spite of the fact that I have to pay for magazines - Facebook gives me more relevant information, more relevant ads, all for no cost.

Facebook was priced as a growth company and people were tricked into thinking that it is. The valuation on the stock makes absolutely no sense and it could easily be a $15 stock by the end of the summer.

On the other hand, here's a NASDAQ growth story that is in fact exciting.

While over 50% of all North Americans have a Facebook accounts, of the 300m cars on North American roads today 0% are electric. If there was a compelling, disruptive automotive technology that provided real value in the marketplace there would be a tremendous growth opportunity, right? Right!

That company is Tesla Motors, the product is the Model S. Tesla hopes to produce 20,000 Model S luxury sedans in 2013 (0.006% of North Americas fleet) with a range per charge of 160 to 300 miles per charge (avg US commute = 16 miles), better appointments than luxury brands with faster acceleration, 10% of the per mile cost and dramatically less in lifetime service costs (no oil changes, belt changes, spark plugs, etc).

As production ramps up if anyone is shopping for a new Infinity, Mercedes, Acura, Lexus, Volvo, Jaguar, BMW, Ford Taurus, Nissan Maxima, etc. they ought to seriously consider the Tesla Model S.

Tesla makes such a compelling argument with their products, in comparison to existing technologies that they are poised for dramatic growth. Governed by intelligent managers, it's safe to assume they will have the luxury of keeping the anticipation growing without building a glut of vehicles as is the standard practice of traditional auto makers.

The difference between these two companies is that Facebook has cashed in on it's rapid growth and captured a great deal of the froth associated with it, while Tesla has made itself available to for investors to take part in their growth.

The Model S has pre-orders to keep the manufacturing facility at capacity into spring of 2013 (no member of the public has even driving a Model S yet) and expect to be profitable through 2013 (then we can compare P/E ratios). Tesla is certainly priced as a growth company and it inarguably is. It's the global leader in electric vehicles which represents 0% of the market which highlights the distinction between it and Facebook.

Trading stocks involves buying and selling. We all understand buying something and selling it at a higher price to make money. In trading you can also make money by selling stocks "short". You essentially say to the market "IOU ## shares of XYZ company." If the shares price goes down you can buy the shares from the market, settle the IOU and keep the difference. So 100 shares that drops $3 = $300 profit.

Currently, Tesla is the security on the NASDAQ with the greatest short interest (most people betting against it). This is measured by NASDAQ which also provides a neat statistic called "Days to cover" which says - 'given the number of shares shorted and the average number of shares traded daily, how many days of average volume would it take for all of the IOU shares to be bought to be repaid?' For Tesla, the average days to cover is between 12 and 30.

So when good news comes out on Tesla it would take 3 - 6 weeks of trading to clear the shares held in IOU - if ONLY people holding short positions were the buyers. That's a lot of buying interest which drives stocks higher. If people have to scramble to pay back their IOU's there's also probably many that want to buy the stock because they've been awoken to it's growth potential, and probably very few people willing to sell. 

So, if, on June 22nd when the public finally gets to drive the Model S, and the reports come back half as flattering as there were about the $109,000 Tesla Roadster there will be real buying interest which will force short sellers into covering their shares (more buying interest - short covering) which could easily lead to a 60% increase in the value of the stock to $50 - Maxim Group's price target.