How do you know when a company is really hot? When a national broadcast celebrity decides to auction off a three-hour ride with him in his Tesla Motors (TSLA) Model S.
That’s precisely what call-in talk show personality Tom Leykis says he will do for highest bidder on auction site eBay (EBAY). As of this writing, the highest bid for a ride with Tom in his Tesla Model S is $4,400. But there are a few days left before the auction is over, so expect that ride to cost a whole lot more.
While the Leykis and Tesla Model S experience is likely as much about the provocative talk show host and Internet broadcast entrepreneur as it is about TSLA, there’s no denying the appeal of a chance to ride in what is the first truly exciting, industry-changing luxury all-electric vehicle.
As a car guy, and as someone who has had the pleasure of driving a Tesla, I can unequivocally say that this vehicle is stunning in both appearance and performance … and really is in a class by itself.
Of course, the appeal of the Tesla Model S hasn’t been lost on Wall Street. In fact, Tesla stock has been one of the best performers in the market over the past several years, with TSLA soaring more than 600% since the company went public in June 2010. Year-to-date, Tesla stock is up more than 300% — but that stunning performance doesn’t tell the whole story.
Since hitting an all-time high on Sept. 30, Tesla stock has unplugged, with TSLA falling nearly 30%. The recent slide in this market leader has some investors wondering if the party is over for Tesla stock. Others are wondering if the recent pullback now represents a chance to get into TSLA at a bargain price.
So, should you buy Tesla stock? Here are three pros and three cons.
Tesla earnings. The recent third-quarter Tesla earnings report showed non-GAAP EPS of 12 cents, firmly above consensus. Gross margins also were strong for TSLA, coming in at 21.5% (excluding zero emission vehicle credits). That metric was a big jump from the 14% gross margin number last quarter. Revenue also impressed in the Q3 Tesla earnings report, driving in at $603 million vs. the $50 million we saw in the same quarter a year ago. These numbers are indeed impressive, and if TSLA can continue delivering earnings beats the way it has all year, this will continue to be a bullish foundation for Tesla stock.
Genius factor. Part of the reason why Tesla stock has been such a winner is the confidence in its genius CEO Elon Musk. The billionaire isn’t your average make-the-trains-run-on-time CEO. Musk is an entrepreneur dedicated to changing the way society does things. Beginning with his creation of online payment processing service PayPal, and moving on to Tesla and his private space exploration firm SpaceX, Musk is a businessman on par with the likes of Apple’s (AAPL) Steve Jobs and Ford Motors’ (F) Henry Ford. The TSLA CEO is a rare individual that creates massive wealth through a genius idea and the ability to make that idea a reality.
Value. If you’re someone who likes to invest in companies with massive growth potential, and not someone who merely likes to trade ticker symbols, then the latest 30% rollback in Tesla stock means you get to own this game-changing company at very attractive price. When it comes to investing, finding outstanding stocks that have pulled back largely on profit-taking is one great way to get in on a good value, and that’s likely what’s taking place right now in TSLA stock.
Disappointing deliveries. The aforementioned Q3 Tesla earnings report wasn’t devoid of concerns. In fact, rather than concentrating on the actual financials, Wall Street was more concerned about what it considered disappointing Model S deliveries. The company delivered 5,500 Model S vehicles during the quarter — 500 more than the company anticipated, but below the 5,700 to 5,750 deliveries TSLA stock analysts were hoping to see. If deliveries continue to lag going forward, this will likely continue to be a drag on Tesla stock.
Momentum. Tesla stock has been a fantastic momentum play, especially through the first nine months of the year. Yet when momentum in a red hot stock like TSLA starts to cool, things can get cold very fast. Moreover, this is the time of year when fund managers like to lock in big gains, and certainly one of the biggest gainers in many portfolios is Tesla stock. This “sell your winners” attitude, along with Tesla stock’s recent sell-off, could keep downward pressure on TSLA for at least a while longer.
Great expectations. When you defy the odds and become the hottest stock and one of the most talked about public companies around like TSLA has, you have to over-deliver every time or you’ll see your stock fall. This is precisely what’s happened to Tesla stock of late. It shows that in order to keep on running strong, TSLA will have to meet some great expectations. If it can’t, then the weakest holders in Tesla stock will abandon ship in search for the next all-star runner.
The lack of momentum, shortfall on Model S deliveries and the failure to live up to great expectations are worrisome. But if you have a time horizon of more than just a few months, the current sell-off in Tesla stock still represents a fantastic opportunity to own TSLA at a very attractive level.
Tesla and Elon Musk are for real — and in the years to come I suspect they will prove that time and time again.
So should you buy Tesla stock? Hell yes!
As of this writing, Jim Woods did not own any of the stocks mentioned here.