Tesla Races By, Laughs at Other Momentum Stocks

by Kyle Woodley | August 1, 2014 11:41 am

Editor’s note: This column is the latest update in our 10 Best Stocks for 2014[1] contest. Kyle Woodley’s pick for the contest is Tesla Motors (TSLA[2]).

Mo’ mo-mo, mo’ mo-mo, mo’ mo-mo.

Tesla Motors (TSLA[3]) came through again Friday morning after Tesla earnings beat Wall Street expectations, albeit in a still-mixed report.

TSLA stock was up some 4% to start Friday, extending the company’s year-to-date gains to 55% — easily good enough to keep my pick alone in second place in InvestorPlace’s 10 Best Stocks for 2014[4] contest.

Some of the details from Friday’s report?

• Non-GAAP Tesla earnings came to $16 million, or 11 cents per share — down significantly from last year’s 20 cents of EPS, but easily beating the Wall Street’s estimate for 4 cents per share, per Thompson Reuters-surveyed analysts.
• GAAP earnings, however, still came to a loss of $62 million, or 50 cents per share — that’s just about twice what TSLA lost in the year-ago period.
• Non-GAAP revenues jumped 55% to $858 million to top expectations for $811 million; GAAP revenues of $769.4 million were up a whopping 90%.
• Tesla deliveries came to 7,579 cars, up 17% QOQ and beating guidance for 7,500.
• Tesla said it should deliver 9,000 cars for Q3, keeping it well on pace to meet full-year projections of 35,000 vehicle deliveries.

I’m obviously glad for the response … for a few reasons.

For one, Wall Street apparently isn’t spooked by that jump in Tesla’s GAAP loss, which is fair considering that’s coming on increased research and development spending — costs for R&D rose 20% in the quarter, and TSLA says that’ll continue in Q3, plus it plans on spending more for new employees.

I feared Tesla might be in for a walloping on anything but a perfect report merely given how much highly valued momentum stocks have been punished for not putting up real numbers this quarter. Amazon (AMZN[5]) was clipped a few days ago[6] on a wider-than-expected loss. Angie’s List (ANGI[7]) was bludgeoned and sent to all-time lows on an earnings miss. Even new tech darling GoPro (GPRO[8]) got a bitter taste of reality this morning after its unadjusted losses expanded by 300%.

Given that TSLA trades around 75 times next year’s earnings and has been one of the best stocks for the year … well, it wasn’t crazy to think a little froth might come off.

Moreover, Tesla doesn’t exactly have a history of resting its legs after earnings. Here’s a look at the next-day behavior of TSLA stock after the past four earnings reports:

• May 7: -11.3%
• Feb. 19: +8.4%
• Nov. 5, 2013: -14.5%
• Aug. 7, 2013: +14.5%

So, what can we take away from today’s behavior?

Basically, all’s mostly well — and it looks like the market mostly thought that would be the case. TSLA stock has been recovering nicely since its multimonth slump earlier this year, but not in an overly aggressive fashion. There’s plenty of optimism to spare thanks to headlines preceding the report, such as Tesla’s agreement with Panasonic (PC[9]) on building the new “gigafactory,”[10] as well as the Model X being on track for 2015 production[11].

Meanwhile, the Street got enough optimistic comments out of Tesla to continue believing in the long-term. For instance, CEO Elon Musk is targeting more than 100,000 deliveries annually by the end of next year (including both the Model X and Model S). Then, there was this deliciously cryptic quote:

“In the past we’ve shown all of our cards, so people have kind of gotten used to us showing all of our cards. We’re not currently showing all our cards.”

Bottom Line

Wall Street appears to be showing much more patience for TSLA stock than the rest of the momentum world, and given the very real results Tesla continues to put up, you won’t hear much of an argument from me.

Tesla still faces the same danger any other hot-runners do — a declining broader market could create a mob of sellers — but short of the unseen, there’s little slated between now and the next earnings report that should significantly shake TSLA. And naturally, there’s always the possibility of another Elon Musk curveball[12].

For now, you’re not getting much “value” by buying TSLA stock at current prices, but that’s only because Tesla isn’t cheap. But it’s still an exciting long-term holding.

Kyle Woodley[13] is the Deputy Managing Editor of InvestorPlace.com[14]. As of this writing, he was long TSLA. Follow him on Twitter at @KyleWoodley[15].

Source URL: https://investorplace.com/2014/08/tsla-stock-tesla-earnings/

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