According to the latest filings, Cathie Wood and her Ark Invest recently sold 181,294 shares of Tesla (NASDAQ: TSLA). It's a slightly surprising move considering how bullish Wood has been about her Tesla position. She has a long-term price target of $2,600 for Tesla stock.
Why is Wood selling?
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The first thing to understand is that Tesla is still the biggest holding in Ark Invest's portfolio. The firm owns more than 3 million shares worth approximately $1 billion. So while the position comprised 8.5% of Ark Invest's portfolio last quarter, it still has a weighting of 7% after the recent sale.
Big funds are constantly adjusting their positions. That's especially true for growth funds like Ark Invest, which can see massive fluctuations in position values over short periods of time. Seeing a major position trimmed shouldn't be taken as a bearish indicator. That said, there is another reason to believe Wood is adjusting this position.
I think Wood is still very bullish on Tesla stock over the long term, though the position sizing may have gotten too big for how Ark Invest prefers to manage risk. But you typically don't sell a stock that you believe is wildly undervalued over the near term.
However, while Tesla may be undervalued over the long term, shares are notably expensive compared to their near-term potential. Tesla's sales are actually expected to drop, with analysts warning about a difficult year ahead. Meanwhile, the stock trades at 17 times sales -- a huge premium to other electric vehicle stocks.
So while I wouldn't read too much into Wood's recent sale of Tesla stock, it is possible that she has concerns over the stock's valuation right now as related to its short-term potential.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
