Selling Tesla stock may not be a bad thing

Getting out of Tesla at $420 per share might not be a bad thing for retail investors who own the popular stock that has a cult-like following.

Indeed, Elon Musk’s plan to take Tesla private could force retail investors to decide if they want to stay invested in the electric-car maker if – and it’s a big if – the CEO’s offer, which was made public in an unorthodox string of Twitter tweets earlier this week, ever happens.

Musk, the visionary and often controversial CEO, said he would consider converting Tesla into a private company at a price of $420 a share and that it is his hope that “all shareholders remain.” And while there are scant details as to how this corporate transition might be structured and how Main Street investors might be involved, Musk himself tweeted that “shareholders could either sell at 420 or hold shares & go private.”

Given a choice, investors should “take the 420 and go,” advises Rob Arnott, founder and chairman of Research Affiliates, a firm that manages money for big institutional investors. Arnott’s call is based on valuation. He says Tesla, which has yet to turn a quarterly profit since going public in June 2010, is an overpriced stock, one that he dubs a “micro bubble.”

“You have to use exceptionally aggressive growth assumptions to justify Tesla’s current stock price,” he says, adding that investors should be ecstatic that they have a possible “exit strategy” at $420 a share, which is about 20 percent higher than Thursday’s close of $352.26 following a 5 percent drop. Tesla went public at $17 a share more than eight years ago.