Tesla Motors (TSLA) has been one of the hottest stories on Wall Street over the past year or two. As of yesterday’s closing bell, TSLA stock was up about 270% in the last 12 months and over 600% since January 2012.
Of course, Tesla earnings after Wednesday’s bell have taken a bite out of that performance. As of Thursday’s open, TSLA stock is off by double digits and is looking to have quite an ugly day.
So what’s the score here? Is this roll-back in Tesla stock the buying opportunity that some bulls have been looking for, where shares have finally cooled off enough to allow new money into TSLA stock at a fair price? Or is the recent negativity after earnings well-placed, and a sign that more pain is the come for the electric vehicle maker?
Unfortunately for TSLA stock and CEO Elon Musk, I think it’s the latter.
Here are five big reasons to steer clear of Tesla for a while:
Earnings aren’t there: Let’s start with the fact that Tesla earnings were pretty weak when you get into the details. Profits topped expectations at 12 cents per share … but when you use generally accepted accounting principles, Tesla actually operated significantly in the red on the quarter. This bookkeeping trick has not gone unnoticed by Wall Street.
Sales: It was already looking iffy for Tesla stock going into this report given a prediction of lower revenue quarter-over-quarter. While non-GAAP revenues of $713 million did beat estimates, it still was $48 million lower QOQ. Investors in high-growth momentum stocks like TSLA need to have confidence that the business is scaling up rapidly; expectations might be out of whack.
What Gigafactory? Investors are still waiting eagerly for news of the so-called “gigafactory” that was floated back in February. The idea was to push ahead with a battery facility for both its own use and to capitalize broadly on the growing electric vehicle market… but all Tesla had to say in its 8-K filing was that: “Planning discussions with Panasonic (PC) and other potential production and supply chain partners continue to go well and we are pleased with the high interest level in the project.” Investors hoping for a pop from the Gigafactory will likely be waiting for some time, given how the last few months have gone.
UPDATE: Tesla did announce that Panasonic was on board, having signed a letter of intent, and that the companies would break ground on the new gigafactory in June. There were few specifics past that.
A Long Way to Go: Investors got disappointing news in March, when it was announced that the highly anticipated Model X SUV from Tesla was delayed and wouldn’t hit the market until 2014. And in the most recent earnings call, TSLA was hot on expansion into China… but said the plan is to build there in the next three to four years, not anytime soon. As John Thompson, the CEO of Vilas Capital, told CNBC: “Unfortunately the stock has half the market cap of General Motors (GM) and they need to become a mass-market company to justify its valuation.” Clearly these items show problems with Tesla moving into the mass market as quickly as some hope.
I’ll admit that I am a Tesla believer in the long-term, and that I do not think TSLA will go to zero just because of one earnings report.
But I also have been saying for some time that TSLA stock is the quintessential momentum play, driven by sentiment over anything else.
And sentiment right now clearly seems to be moving to the downside … so steer clear of Tesla for the time being.
TSLA stock is not a bargain buy.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.