Last week, Tesla Inc (NASDAQ:TSLA) released its first-quarter earnings, and much to the dismay of investors and analysts hoping for a bottom-line beat … well, they didn’t get one. Instead, TSLA stock took a quick dip after the company reported another negative profit surprise — its third in the past four quarters.
Analysts expected revenues of $2.62 billion to filter down to an 81-cent loss. While Tesla’s revenues of $2.63 billion did the trick, earnings grew from 57 cents per share a year ago to $1.33 — a wide miss.
The path to profitability for Tesla appears to be one wrought with uncertainty. However, with TSLA stock trading near 52-week highs, it appears that for the majority of investors, profit is not the primary concern at the moment.
Will Investors Ever See “Green” in Tesla Stock?
OK, it’s true. Tesla, Inc. has had a few quarters with earnings beats and with positive bottom-line numbers. It’s also true that large capital expenditures and a massive Model 3 production ramp-up has many outsiders taking earnings results with a grain of salt.
That said, long-term investors looking for stability with Tesla’s fundamentals continue to be disappointed.
The reasons for the large earnings miss are myriad, and includes the costly ramp-up to Model 3 production, slated to begin this summer, hitting quarterly numbers this time around. The company’s impressive capital expenditure budget is expected to come in around $4 billion for this year, with more than half of that budget needed to get the Model 3 into production by July.
Tesla is well-capitalized, with over $4 billion of cash currently sitting on its books, thanks in part to a capital raise of $1 billion this past quarter, complemented by a large equity investment by Chinese firm Tencent Holding Ltd (OTCMKTS:TCEHY), which purchased 5% of Tesla stock in Q1 2017. With a current ratio sitting at 1.12, the company remains liquid and solvent, and should continue to remain so as long as Tesla is able to take on additional debt to finance its much-anticipated rollout of the Model 3.
Raising debt has been the playbook for TSLA of late, and the EV company now has more than $8 billion of debt sitting on the company’s books. Long-term investors such as David Einhorn have suggested that this large debt load, coupled with uncertainty as to the Model 3 release and the accompanying margins Tesla should expect, will likely hamper profitability in the short and long-term.
Additional debt or equity raises also pose a risk for investors looking to buy in at Tesla’s current inflated valuation. TSLA stock now trades at more than 10x book value and 173x forward earnings.
Those numbers simply don’t add up for conventional, cautious long-term investors.
The Bulls Don’t Care
Tesla is a company with a diverse investor base and fierce disbelievers.
As the most shorted stock of any company worth more than $50 billion, TSLA has a large group of short sellers ready to profit off of the company’s poor fundamentals, despite an investor base which David Einhorn of Greenlight Capital says are “hypnotized” by Elon Musk and have ignored the fundamental realities of mass-market car production.
Mr. Einhorn may be right, but for now, his large short position in Tesla appears to be an anchor for his returns. While Greenlight Capital has shown amazing perseverance in sticking with this short, the bulls driving TSLA stock higher have priced in
Those holding Tesla shares have seemingly bought completely into the growth story that is Tesla.
With revenues skyrocketing, year, and record production and delivery numbers bolstering confidence among the existing investor base, there appears to be solid support for this stock despite its unusually high valuation metrics for a manufacturing firm.
Bottom Line on TSLA Stock
Investors in other long-term growth plays such as Amazon.com, Inc. (NASDAQ:AMZN) have been rewarded by sticking with the company during long periods (decades) of sustained revenue growth alongside negative earnings.
I, however, remain skeptical.
As of this writing, Chris MacDonald did not hold a position in any of the aforementioned securities.
