Tesla’s Off to the Races on Earnings

by Traders Reserve | November 6, 2012 1:00 pm

Tesla TSLAElectric car manufacturer Tesla Motors (NASDAQ:TSLA[1]) released earnings for the quarter ending Sept. 30, 2012, on Monday before the market opened. Tesla said it lost lost 92 cents per share in the quarter, excluding special items. Analysts expected a loss of 90 cents per share.

Revenues came in at $50 million versus an estimate of $48 million. Looking forward, Tesla said it was on track to meet its targets for the rest of the year and 2013. As it ramps up production of its signature vehicle, it will improve gross margin to 25%, the company said. Shares of Tesla were up 3% in early trading on Monday.

Tesla might just be the little engine that could[2]. Building a new car company is no easy task and yet the company is on track to reach its goals and objectives for this year and next. Does that mean success? Not really, but it has to be encouraging for those owning shares of Tesla.

Analysts expect the company to be profitable in 2013. At that expected profit of 35 cents per share, Tesla trades for 85 times 2013 estimated earnings. That’s a hefty price, but not when you consider the size of the market. The long-term play for investors here is to see Tesla continue to prove its model. If it can prove its model, the likelihood of a takeover by a larger automaker is quite likely. I think the key profit number is going to be in the $2 range.

Can Tesla go from an expected 35 cents per share next year to $2 a share in profits or more in the next few years? Assuming it can and shares trade for the same dollar price as today, the stock would be valued at 15 times earnings. I raise the valuation issue not to deter, but to realize that Tesla is a pure momentum play. Ride the wave for another 6-12 months, but know when to exit.

The bottom line is the news from Tesla is encouraging for sure. Buy the momentum stock today and fasten your seat belts. It should be a fun ride.

  1. TSLA: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSLA
  2. the little engine that could: https://investorplace.com/2012/10/the-case-for-and-against-tesla-stock/

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