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Summary

  • The ARK Innovation ETF purchased $13.7 biliion worth of stock.
  • Tesla reported its earnings on Wednesday evening.

After Tesla Inc. (TSLA, Financial) shares fell on Thursday on the back of lackluster third-quarter sales and a warning that it will miss broad annual growth targets for the year, ARK Investment Management leader Catherine Wood (Trades, Portfolio) took advantage of the sell-off.

The guru, who is the founder, chief investment officer and CEO of the New York-based firm, disclosed via the flagship ARK Innovation ETF (ARKK
ARKK
, Financial) that she scooped up 66,190 shares of the electric vehicle manufacturer on Oct. 20. The purchase is valued at approximately $13.7 billion based on Tesla’s closing price on Thursday.

It is also the second time she has added to her investment in Elon Musk’s company this month. The fund bought the dip following a miss in deliveries that Tesla reported on Oct. 3.

According to GuruFocus portfolio data, which is based on 13F filings for the third quarter, Wood held 4.08 million shares as of Sept. 30, which represented her largest holding with a 7.55% weight.

GuruFocus data shows she has gained an estimated 137.45% on the long-held investment so far.

Wood has made a name for herself through investing in “disruptive innovation” stocks. Implementing an iterative process that combines top-down and bottom-up research, ARK Investment seeks to invest in companies that may benefit from cross-sector innovations like artificial intelligence, robotics, energy storage, DNA sequencing and blockchain technology.

Tesla fits the bill as the company has disrupted the automotive space with its innovative EVs and self-driving technology. Wood has long been a fan of the company, which she said in her third-quarter letter was a top performer.

She also discussed how companies focused on disruptive innovation have the potential to surprise to the upside with considerable exponential growth trajectories.

“Traditional auto analysts deemed Tesla as doomed to failure: they did not understand that Tesla was a robotics, energy storage, and artificial intelligence company, not an auto company,” Wood wrote.

Financials snapshot

On Oct. 19, Tesla reported that revenue for the three months ended Sept. 30 grew 56% year over year to $21.45 billion. This fell short of the $21.96 billion Refinitiv analysts were anticipating, however.

According to Bloomberg, this is the first time the Austin, Texas-based company has missed revenue estimates since the third quarter of 2021.

Net income of $3.3 billion also increased from the prior-year quarter. Earnings of $1.05 per share topped analysts’ expectations of 99 cents.

Despite downturns in both China and Europe as well as the Federal Reserve’s interest rate increases, Musk said during the earnings call he expects demand to continue to be strong.

“I can’t emphasize enough we have excellent demand for Q4 and we expect to sell every car that we make for as far into the future as we can see,” he said. “The factories are running at full speed and we’re delivering every car we make, and keeping operating margins strong.”

Valuation

Tesla has a $652.95 billion market cap; its shares were trading around $208.38 on Friday with a price-earnings ratio of 76.23, a price-book ratio of 18.10 and a price-sales ratio of 10.75.

The GF Value Line
VALU
suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.

The GF Score of 81 out of 100, a ranking system that backtesting has found to be closely correlated to the long-term performance of stocks, further indicates the company has good outperformance potential. While Tesla received high ranks for momentum, GF Value, financial strength and growth, it recorded middling marks for profitability.

GuruFocus rated Tesla’s financial strength 8 out of 10, driven by a comfortable level of interest coverage and a robust Altman Z-Score of 14.42 that indicates it is in good standing. The return on invested capital also eclipses the weighted average cost of capital, meaning value is being created as the company grows.

The company’s profitability scored a 4 out of 10 rating on the back of strong margins and returns on equity, assets and capital that are outperforming a majority of competitors. Tesla also has a high Piotroski F-Score of 7, indicating that operations are healthy, and a predictability rank of one out of five stars. GuruFocus research shows companies with this rank return an average of 1.1% annually over a 10-year period.

Guru investors

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Of the gurus invested in Tesla, Bailllie Gifford currently has the largest stake with 0.90% of its outstanding shares. Ron Baron (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio), Spiros Segalas (Trades, Portfolio), Philippe Laffont (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also have notable holdings.

Other trades

Wood’s ARK Innovation Fund also revealed its sold shares of several stocks on Thursday, including Nvidia Corp. (NVDA, Financial), Intellia Therapeutics
NTLA
Inc. (NTLA, Financial), CRISPR Therapeutics AG (CRSP
RSP
, Financial), Berkeley Lights Inc. (BLI, Financial), Beam Therapeutics
BEAM
Inc. (BEAM, Financial), Materialise NV (MTLS, Financial) and TuSimple Holdings Inc. (TSP, Financial)

Portfolio composition and performance

Wood’s $33.07 billion equity portfolio, which the 13F filing shows consisted of 249 stocks as of Sept. 30, is most heavily invested in the health care and technology sectors.

After a blowout year in 2020, the ARK Innovation ETF returned -23.36% in 2021, severely underperforming the S&P 500’s 28.7% return.

Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours.

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