Anyone who has had skin in the game in Tesla Motors Inc (NASDAQ:TSLA) since the beginning of 2013 has enjoyed the full spectrum of madness that is momentum investing.
Up a few hundred percent here, investment quartered there. Down a bottle of Pepto, rinse, repeat.
The latest move — today’s 8% improvement on news of record Q1 sales — is obviously a happy one for TSLA stock bulls, who year-to-date had suffered roughly 15% losses as part of a 30% decline that had gone on since early September.
More importantly, it likely signals at least a short-term bottom in Tesla stock.
A Justified Beating in Tesla Stock
TSLA stock has suffered from a whirlwind of negative news points in that time period. Elon Musk calling Tesla’s stock price “kind of high now” back in early September. (Self-inflicted wounds are the worst.) The Tesla D turning out to be “just” a supercar instead of a new, more mainstream model in October. Disappointing Model S production in Q3, as well as yet another announced delay in the Model X.
And of course, there’s 2015’s fresh hell — TSLA sales difficulties in China.
Couple that with dartboard projections for what Tesla stock will get (and when) out of its planned Gigafactory, slap on long-held beliefs that TSLA was overvalued in the first place … and yeah, you get what we’ve got on our hands.
But maybe we bulls can breathe a little easier for now.
The Short-Term Game Just Turned in TSLA’s Favor
Tesla just reported a boffo Model S sales increase of 55%, to 10,300 units, for the first three months of 2015. That’s all the news there is, but it’s a pretty important tidbit, and one with excellent timing.
For one, it likely puts a stopper in any conjecture to just how bad Tesla’s China sales struggles would weigh on the company’s overall Q1 results, which are due out in about a month. Sure, we might not see much of a big surprise bounce come May 5 — and sure, we could see other negative surprises — but we can start to take a more optimistic stance knowing that China probably didn’t put the screws to Q1’s overall numbers, either. (Something that has been well priced into shares at this point.)
As a note: This also was the first time Tesla reported quarterly sales outside of its earnings report. Granted, traditional automakers like Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) put out monthly numbers, but it’s a step in the right direction for skeptics who want more normal practices out of Musk & Co.
Things look improved on the technical front now, too.
Today’s move shot Tesla shares well back above the 50-day moving average — a line it has fought (and failed to stay above) for months, most recently bouncing below it in late March. Moreover, positive momentum — as measured by the Relative Strength Index — is back above the 50-day mark but nowhere near overbought levels quite yet.
Of course, TSLA has poked through that 50-day several times this year only to be shut back down, and positive momentum has yielded to further losses.
The key from here is watching to see whether Wall Street quickly finds another reason to sell.
As of this writing, Tesla was trading at $206, which is right up against overhead resistance at its 23.6% Fibonacci retracement level. Should TSLA falter again, it’s likely at least targeting a return to around the $180 range where it bottomed out before — roughly 10% losses.
However, should we see follow-through buying (in other words, if Tesla can stay above that important moving average) in the next couple of days, TSLA could make an attack on its 200-day MA around the $228 level, which rests some 10% higher from here.
Bottom Line
Tesla has far from conquered all of its issues. We’re still hearing about more and more competition on the high-tech vehicle front — not to mention from Silicon Valley, whether it’s Google Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) driverless car or Apple Inc.’s (NASDAQ:AAPL) rumored EV. How the Gigafactory will pan out in five years is a crapshoot. Elon Musk can’t get out of his own way — teasing yet another new product, and so far, his track record on pre-announced reveals is awfully mixed.
But Tesla has swallowed a lot of losses in the past six months, so at least a short-term rebound doesn’t seem far out of the question.
Heck, Tesla’s valuations even look sane at this point — a forward price-to-earnings ratio of 50, sure, but on projected 2016 earnings growth of about 550% following a forecast of earnings set for more than a quadrupling this year.
I’m bullish on Tesla for the long term, and at least to me, this smells of a decent buying opportunity, whether you’re just looking for a swing trade or an ideal entry point for a longer hold.
Kyle Woodley is the Managing Editor of InvestorPlace.com. As of this writing, he was long TSLA and is considering buying additional shares within the next 48 hours. Follow him on Twitter at @KyleWoodley.
