Tesla Stock: What to Know Before Tuesday’s Report

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To say that the last few weeks have been tough ones for Tesla Motors (TSLA) would be something of an understatement.

Tesla Stock: What to Know Before Tuesday's CloseTesla stock is down 19% since late September … a pullback initially spurred by the shock stemming from the uncomfortably high price tag of the new Model X SUV.

The drop was exacerbated by an updated Consumer Reports assessment of the Model X that was less than flattering — the consumer-guidance outfit deemed the vehicle’s reliability as below average, even though it still raved about its overall ownership/driving experience.

And yet, those investors who have remained faithful to their TSLA holdings must also recognize that this current spat of weakness is nothing new. Tesla stock is presently priced right where it was in April of 2014, having tried and failed to rally twice in the meantime.

To that end, the bearishness since late-September (which actually extends back to early July) has finally injected something new into the market’s discussion of TSLA. That “new” X-factor is the distinct possibility that Tesla Motors is no longer being given a free pass based on the premise of uber-cool electric vehicles.

From this point forward, the market may want to see actual results — or at least the plausible promise of growth — before bidding TSLA up any higher.

In light of that impatience, the Tesla earnings report due Tuesday afternoon could end up being more of a make-or-break event than most of the market realizes.

Here’s what investors needs to know.

Tesla Earnings Outlook

The upcoming third-quarter earnings announcement from Tesla Motors, due after the close on Tuesday, should look noticeably different than recent results … even if not dramatically different. Analysts collectively expect to see the company post a loss of 50 cents per share of Tesla stock on $1.26 billion in revenue.

The projected top line is 35% stronger than the $932.3 million in sales generated in Q3 of 2014, though the anticipated loss is a swing into the red from the 2-cent gain Tesla posted a year earlier. Investments in its battery-production facilities and a retooling of its vehicle production plant are the core causes of shrinking margins despite rising revenue.

On a unit basis, CEO Elon Musk has already noted the company delivered 11,580 electric vehicles (almost entirely the Model S) in the third quarter. That’s only a tad better than the 11,532 vehicles Tesla delivered during the second quarter, calling into question the expected 32% sequential growth in the company’s top line.

Regardless, the year-to-date total deliveries of 33,157 vehicles makes the previous 2015 goal of between 50,000 and 55,000 look effectively out of reach.

It’s this reality that’s kept Tesla stock capped for the better part of the year: Where’s the expected growth?

2 Things for TSLA Owners to Mull

While the market has plenty to mull regarding the future and present value of Tesla stock, the biggest factors that could propel or punish TSLA are (in no particular order):

  • Powerwall: With its electric vehicles hogging the spotlight of late (in good ways and bad), many investors may have let the Powerwall — an energy-storage battery system that provides power for a handful of rooms when other electricity isn’t available — slip their minds. It needs to be put back on the mainstream radar, however, as sales could begin rolling in during the current quarter, and Tesla already reports that it has a $1 billion backlog for the device.
  • Model 3: Like most other high-profile tech stocks, Tesla stock is largely valued now based on where it’s plausibly going in the future. And, a large part of Tesla Motors’ future is the Model 3 …  the $35,000 electric vehicle that will clearly be targeting a larger, less-affluent driver market. Though pre-orders don’t start until March and production won’t begin until 2017, the vehicle is still in play as a factor for the stock. The vehicle is said to be built on all new technology, and Tesla apparently expects to deliver 500,000 units per year. But the likely production cost of the Model 3 as well as the extremely lofty delivery aspirations are weighing on investors’ minds.

The topics may or may not be discussed in the Tesla earnings call. But, they’ll all be matters discussed by the media and analyst before and after the event.

Bottom Line for Tesla Stock

As of Monday of this week, TSLA shares acting as if they’re ready to bounce back after their October stumble, largely fueled by an anticipated profit of $2.23 per share in 2016 on 61% revenue growth — to $8.7 billion — in revenue.

That’s increasingly looking like a long-shot, however, and even if Tesla can hit those targets, Tesla stock is still priced at 95 times 2016’s expected earnings, and trades at 7.1 times its trailing revenue for the past twelve months. At that kind of valuation, Tesla stock is dangerously priced for perfection, and leaves no room for disappointment.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/tesla-stock-know-tuesdays-close/.

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