Tesla Motors Inc (NASDAQ:TSLA) will post earnings Wednesday after the bell, and investors are watching closely for signs that TSLA stock is back on track.
Now, Tesla is undeniably a force all its own. TSLA stock is up more than 1,100% since its 2010 IPO and its wunderkind CEO Elon Musk continues his space-age quest to develop new products including home energy storage via its new Powerwall device.
But unfortunately, TSLA stock still remains down about 20% from its highs that briefly topped $290 a share in late 2014. And after a big Tesla earnings miss in February, featuring a significant quarterly loss vs. projections of profits, the electric vehicle giant fell as low as the $180s.
So what’s next for Tesla stock, and can investors trust TSLA as the company approaches earnings this time?
Tesla Stock Charts are Looking Good
The good news for investors is that a lot of the Tesla charts and trading data are looking up. Short interest in the latest period, recorded on April 15, has risen to its highest level in over a year. At the same time, TSLA stock remains above its 200-day moving average after a recent rally in the past few weeks.
That could be setting up investors for a “short squeeze” where bears are forced to run in and cover their positions. In fact, some of the rally we’ve seen lately may already be some folks capitulating and abandoning their shorts in anticipation of earnings.
Here’s the TSLA stock chart from today, showing shares moving above the red 200-day moving average line and staying there despite a brief retest in April. The RSI, or relative strength indicator, remains slightly elevated but has rolled back from extremely elevated levels a few weeks ago — hinting that we are building a base.
That, alongside with rising volume and the shorter-term 50-day moving average accelerating higher, make a pretty strong chart.
Now, as we all know, charts are accurate until they’re not … and all it will take is one bruising headline to counteract any fancy charts that TSLA stock is drawing right now.
But remember that Tesla is an investment that trades in large part on sentiment, and technical analysis can be incredibly useful in getting a sense for supply-demand attitudes for a given company.
And right now, at least in the immediate term, it seems that the buyers are outnumbering the sellers.
Tesla Earnings Must Shine
As such, I’m projecting a very nice rally for Tesla stock after earnings — so long as the company can deliver on the bottom line, which will be driven by sales volume and total vehicle deliveries.
Last quarter, CEO Elon Musk said low deliveries were the culprit and that customers were still very enthusiastic. Investors seemed to doubt that line, particularly after some previous softness in TSLA stock sparked by valuation concerns, and it’s crucial for Tesla to show it is ramping up capacity.
Analysts are looking for another quarterly loss, with a roughly 50-cent shortfall over profits of 12 cents a year ago. Tesla stock may get a little leeway if it posts a narrower loss, but not much as investors worry that the core electric vehicle business isn’t profitable enough to support current stock prices.
Low energy prices are also causing doubts, with some theorizing there isn’t quite the incentive to buy a Tesla Model S with gas at $2.40 as there was when gas was $3.40 or higher.
There are other factors, of course, including an update on the “gigafactory” and details on the projected launch of the Model X SUV this summer. But while these big plans are interesting, I remain convinced the attention will be on the bottom line and vehicle deliveries after earnings.
If Tesla can simply hit the mark, or even beat it a bit, the strong charts and potential for a short squeeze could drive the stock up by double digits in short order.
It’s an aggressive play … but hey, by now Tesla stock owners should be painfully aware of the risks and volatility that this stock entails.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.
