Electric car guru Tesla Motors (TSLA) is slated to cruise into the earnings confessional after the close of trading Thursday afternoon, and Wall Street will have its eyes focused on more than just the bottom line.
Despite TSLA stock’s run higher this year, however, there are not as many bulls as you might expect. And for those with a taste for risk, this could open up a potentially lucrative contrarian trading opportunity.
For the record, investors are expecting Tesla earnings to come to 4 cents per share on revenue of $824 million, but deliveries — especially those to Europe and China — will be heavily scrutinized. Furthermore, any news on the crossover Model X, the mass-market Model 3, or the new “gigafactory” battery plan will also be closely watched.
Historically, Tesla Motors has performed admirably in the earnings limelight. TSLA has topped expectations four times in the past two years, missing twice and matching once. Some on Wall Street appear to be accounting for the company’s fundamental history, with EarningsWhisper.com reporting a whisper number of 14 cents per share for Tesla.
That said, the majority of the brokerage bunch do not have high hopes for Tesla. According to data from Thomson/First Call, TSLA stock has attracted just six “buy” ratings, compared to seven “holds” and one outright “sell” rating. What’s more, the 12-month price target of $221 represents a discount to yesterday’s close at $228.92. A change in heart from these naysayers could go a long way to rallying the TSLA bulls.
Short sellers are by far the most negative on TSLA’s prospects. According to data from the most recent reporting period, some 24.1 million TSLA shares are sold short, accounting for nearly 27% of the stock’s total float — or shares available for public trading.
If short sellers are worried about a rally, TSLA stock’s options data doesn’t show it. Typically, short sellers buy call options to hedge their positions, but TSLA’s August put/call open interest ratio of 0.84 reveals that puts are in near parity with calls. This data also runs contrary to the fact that calls are typically more popular than puts when heading into an event such as earnings.
Click to Enlarge Technically speaking, TSLA stock has been a bit choppy lately. After surging to a high north of $260 in February, the shares spent the next several weeks plunging toward the $177 region. TSLA stock has since bounced back, and is trading just north of a 50% retracement of its February high and May low. Additionally, TSLA is also trading above all its key short-term moving averages, with the 50-day just below near $219.
Weekly August implieds are pricing in a potential post-earnings move of about 8.3%. This places the upper bound near $246.38, while the lower bound lies at $208.62.
Options Trade on TSLA Stock
For those willing to take a chance and bet against the grain on TSLA stock ahead of tonight’s report, an Aug $227.50/$245 bull call spread offers up some solid return potential.
At the close of trading last night, this spread was offered at $6.89, or $689 per pair of contracts. Breakeven lies at $234.39, while a maximum profit of $10.61, or $1,061 per pair of contracts, is possible if TSLA stock closes at or above $245 when August options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.