A surge this week has Tesla racing back to levels not seen in three months and reversing a sell-off that had wiped out a year's worth of gains. The charts suggest its comeback is just getting started, one technical analyst says.
"Tesla likes to consolidate and then thrust higher," TradingAnalysis.com's Todd Gordon told CNBC's "Trading Nation" on Thursday. "What we've seen over the last couple of years is Tesla's big-time consolidation."
Since early 2014, Tesla shares have largely traded between $200 and $300. Its stock has not traded below $200 since late 2016 and even pushed closer to the $400 mark, coming within $11 of that level when it hit an all-time high last September.
Zooming in on its performance over the past 36 months, Tesla came under heavy selling pressure twice as analysts raised questions about its fundamentals.
"As everyone was really coming down on Telsa on the fundamentals you can see that all we did was a 37 percent decline which was very much in line with the last decline, which was 34 percent. It's actually very symmetrical, very technical, and very expected," Gordon said.
Gordon expects Tesla shares to push higher and retest their September highs. He targets a move above $400, implying at least 26 percent upside from current levels.
Feeling more bearish, Chad Morganlander, portfolio manager at Washington Crossing Advisors, says Tesla's balance sheet is a major impediment to any long-term gains.
"There's a lot of embedded expectations for revenue growth to continue in 2018 into 2019. What we like is to see free cash flow growth, though, and it doesn't seem like they'll hit free cash flow growth over the next 12 months," Morganlander said on Thursday's "Trading Nation."
The bond market is also sending a signal to Tesla investors, Morganlander added.
"One indicator that I really like to look at is the actual credit indicator. They do have $10 billion of bonds of which are trading roughly about 400 over the U.S. Treasury when you go out to 2025," said Morganlander.
Moody's and S&P both have a negative outlook on Tesla credit.
"Credit is almost like a carbon monoxide detector," he continued. "This doesn't mean that the credit of Tesla can't improve, but you really need to see free cash flow generation or it's not going to improve and that's a good lead indicator for where the stock is going to go."
Tesla last saw positive free cash flow in its September quarter in 2016. It has never posted a full year with positive cash flow.