For the first time in a long time, it seems like most things are turning up in favor of Tesla (TSLA), and that makes TSLA look pretty attractive.
Even as a pricey and volatile growth stock.
After spooking the market last year with a series of disappointing reports, Tesla earnings exceeded analysts’ estimate in several key areas, and that goes a long way to rebuilding confidence in the management team.
In a huge bottom-line beat, Tesla earnings actually came to a loss of 36 cents a share, but analysts were looking for a much wider loss of 50 cents a share, according to a survey by Thomson Reuters.
Production was a fountain of better-than-expected news, too, especially after being marred by a series of glitches in 2014. TSLA produced 11,160 vehicles in the quarter vs. a forecast of 10,000, and shipped 10,045 vehicles in the period against a prediction for 10,030 it made just a month ago. Wall Street was looking for the company to ship just 9,500 vehicles.
And in something that revealed the company’s confidence in the launch of its Model X sport utility vehicle, TSLA reiterated its target of shipping 55,000 vehicles this year.
If that weren’t sunny enough for Tesla bulls, the company said that early interest in its new stationary battery storage system has been “nutty.” As CEO Elon Musk said on a conference call with analysts:
“We’re basically sold out to the middle of next year in the first week — it’s crazy.”
TSLA Stock Worth the Risk
Maybe the market for electric vehicles is being widely overestimated by both TSLA and investors — especially the type of pricier cars Tesla makes. Maybe the new stationary battery business will go cold after a surprisingly hot start. Maybe the management team won’t be up to the task of pulling all of this off.
Maybe it will run out of cash, as one analyst fears.
But after a quarter in which a number of key figures exceeded Wall Street’s expectations and a potentially huge new business line got off to a blockbuster start, TSLA stock probably deserves every bit of its frothy earnings premium.
A stock like TSLA has to grow into its earnings — eventually. Given how Tesla is hitting on so many cylinders now, though, investors can feel more confident that it will happen sooner rather than later. After all, analysts have a long-term growth forecast of more than 100% for TSLA. (That alone will earn any stock a huge premium.)
At the same time — even with the 100% growth forecast — TSLA trades at 63 times earnings. Sure, that looks like a whopping multiple, but by the standards of today’s market, it’s not. Plenty of famous growth stocks command bigger premiums. For example: Amazon (AMZN) is forecast to grow at about a third of TSLA’s rate, and it changes hands at 170 times forward earnings. Netflix (NFLX) has a lower growth rate than AMZN, and it goes for 160 times forward earnings.
The difference between TSLA and those other stocks is that AMZN and NFLX are established companies with proven, winning strategies. Tesla still has a long way to go before the dream of a huge market for its vehicles is realized.
But it’s looking more likely after the latest Tesla earnings report.
The imminent launch of the Model X, strong start to the battery business and operational improvements should convince more investors than Tesla stock is worth the risk.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
