Can Tesla Motors Inc Deliver the Momentum Investors Crave Next Year? (TSLA)

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If earnings are the mother’s milk of stocks, then Tesla Motors Inc (TSLA) shares should peel out next year, as at least one analyst sees TSLA booking an annual per-share profit of more than twice the current Wall Street forecast.

Can Tesla Motors Inc Deliver the Momentum Investors Crave Next Year? (TSLA)TSLA hasn’t had a bad year, but it’s hardly distinguished itself either. The Tesla stock price has been volatile as usual, but the ultimate trend has been decidedly down this fall, erasing most of Tesla’s year-to-date gains.

As a once red hot momentum play, there’s definitely something deflating about Tesla stock being up just 4% so far this year. True, that’s better than the S&P 500’s 1% gain, but on a risk-adjusted basis … well, forget it.

Anyone who follows TSLA knows that it trades on a lot of hope and hype, and that makes it tough to figure out on a short-term basis, to say nothing of trying to determine whether it’s a long-term holding. This is a stock that reacts — usually violently — to any scrap of positive or negative news.

TSLA
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Headline risk is always a headache, and some ominous technicals are giving TSLA an emergent migraine too. As InvestorPlace’s James Brumley noted recently, a number of technical indicators are flashing warning signs. Sentiment has turned sour on the name and it appears that the market doesn’t actually have much faith in Tesla’s long-term viability.

Have a look at the embedded chart of Tesla stock and you’ll see that it found resistance at its 200-day moving average twice this month. More worrisome, Tesla carved out the sell signal of a death cross not long ago. (See the embedded chart, courtesy of Yahoo Finance.)

A Bull Case for TSLA

But if analysts at Credit Suisse are right, all this year-end hand-wringing over Tesla will prove to be a waste of time. Shares in the electric carmaker move far too much on what are ultimately quite limited problems, Credit Suisse says.

The analysts also contend that the market doesn’t appreciate the bigger picture in this name. From a Credit Suisse report to clients on Monday:

“The debate on Tesla stock remains focused around short-term issues, namely Model X production ramp and fourth-quarter volume. We expect both these issues to be addressed in a positive way by early January when Tesla discloses fourth-quarter volumes, allowing the Street to refocus on the long-term story. Beyond that, a much cleaner 2016 should enable better-than-expected earnings and free cash flow.”

The analysts believe that 2016 is going to deliver substantial volume growth, and — more importantly — a significant slowdown in cost pressure. The kicker?

“We expect the combination of these three things will lead to substantial operating leverage which could result in about $4 of per-share earnings and a reduction in free-cash-flow burn to about $500 million from about $1.5 billion in 2015.”

That free-cash-flow estimate — a billion-dollar difference — is a big deal; but it’s the $4 a share earnings that really make the case for TSLA. Analysts, on average, forecast Tesla’s 2016 per-share earnings at just $1.81 a share.

The technicals might look ugly into year-end, but if Credit Suisse is on the bull’s eye here, 2016 could be the year Tesla stock shakes off enough of the skeptics to finally generate some seriously extended upside.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/tesla-motors-inc-tsla-stock-price-elon-musk/.

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