Tesla Motors Inc. (TSLA) piled up plenty of doubters as the electric vehicle manufacturer rolled back about 20% from its September highs. But after yet another strong Tesla earnings report, it appears that TSLA stock still has what it takes to power higher.
Specifically, Tesla earnings beat expectations on Wednesday by posting a profit of 2 cents a share vs. forecasts of a small loss. Furthermore, Tesla CEO Elon Musk told investors that the electric vehicle company had the highest-ever quarterly deliveries in the history of TSLA production, topping out at 7,785 vehicles.
Those are sure signs of growth.
However, the bears also had reason to doubt TSLA stock when they dug into details of the latest Tesla earnings report.
For instance, Tesla Motors Inc. sharply lowered its fourth-quarter earnings guidance to a range of 30 to 35 cents a share, less than half the guidance of 75 cents in EPS that Wall Street expected. The cause was a decline in the outlook for Model S deliveries.
Worse, the highly anticipated Tesla Model X SUV has been delayed yet again.
So what’s the score, then? Should investors be discouraged in the outlook for Tesla earnings … or is this iconic automaker still a strong buy?
I think it’s the latter, and here’s why:
Buy TSLA Stock After Mixed Tesla Earnings
Sure, there are reasons to be negative. Lower-than-expected deliveries are a drag, and so is the delay in Model X deliveries. Also a negative is the fact that Tesla’s 2-cent profit was down considerably from Q3 2013’s 12 cents per share.
However, don’t forget that Tesla stock still is very much a sentiment-driven investment. And sentiment appears strong, given that TSLA spiked opened about 6% higher Thursday. This shows how optimistic Wall Street is about this company … and optimism is a very precious commodity for momentum stocks like TSLA.
If you want to know the reason for this positive sentiment, look no further than the top line. Specifically, non-GAAP revenue in Q3 hit $932 million — a massive 55% jump in sales, topping forecasts of $889 million in revenue.
Tesla selling so many vehicles, topping forecasts and pocketing a decent profit is quite a feat.
While it would have been nice to see deliveries of Model X in Q1 2015 as previously expected, a push to Q3 doesn’t mean this highly anticipated electric SUV will be any less of a success.
And it’s obviously not good that Tesla lowered its outlook for vehicle deliveries on the year by 2,000 vehicles. Since it cranked out less than 8,000 last quarter, that’s a huge portion of Tesla Model S deliveries.
But keep in mind that has nothing to do with demand, simply supply based on production. Consider that as of Sept. 30, the company was sitting on $227 million in customer deposits. While there’s no easy way to calculate how many vehicles that adds up to, if the typical deposit is $7,000 (which I think is rich), that adds up to more than 32,400 Teslas already sold and simply waiting on delivery.
The challenge here is simply keeping up with demand — a great problem for any company to have, and a great reason to bet on TSLA stock going higher despite some of the disappointing delays.
Tesla Bears and Fuzzy Math
Tesla never will be without bears. One great example is a delusional investor named John Thompson, CEO of Vilas Capital Management, who told CNBC, “A company making 33,000 cars is worth half of Ford Motor Company today” in the same old dig that Tesla should somehow be valued on vehicle deliveries alone.
But any investor with a brain should know this argument doesn’t hold water.
Consider that Ford (F) sold 6.33 million vehicles last year. At a current market cap of $53.7 billion, that would mean that it’s valued at about $9,052 per vehicle sold.
What, so Tesla stock should have a market cap of $300 million by this math for a share price of about $2.40 per share? Or if you want to be charitable and go off of the starting sticker price of about $70,000 for a Model S, do bears like Thompson think Tesla is only worth $2.3 billion then — a share price of $18.50 or so?
That’s ludicrous. And particularly so when you consider that Tesla’s 8-K shows $2.4 billion in cash laying around and $5.4 billion in total assets including vehicle inventory and other line items.
Just stop it, guys.
For the record, Thompson has been beating the drum on why Tesla will crash with appearances on CNBC as early as February when Tesla was around $200 a share. While TSLA briefly dipped below that mark for a two-week stretch in May, it didn’t stay there long and is now at $230 and moving higher.
You want to be short Tesla from $230 to $200 or maybe even $180, then fine. This is a volatile stock, and I wouldn’t be surprised if it gapped down 20% or so on no news in the next few months (only to snap back, of course).
But Thomspon said to short Tesla stock with a target of under $100 … $100!
I hope whatever investors he has in his fund are wearing their safety belts. Because that target ain’t happening.
Consider that if you want to use that $5.4 billion in total assets as an absolute floor for valuation, and completely forget about Tesla’s growth potential or profitability or investor sentiment, that gives you a price of around $43. And it’s downright delusional to expect TSLA stock to ever get there anytime soon.
Also, remember Tesla is not supposed to be Ford or General Motors (GM) or any other old-line auto stock. For starters, it’s a technology company as much as an automaker with an ambitious plan to build a massive battery factory to fuel hybrid and electric vehicles. Secondly, its business model is incredibly different, with half of the states in America banning direct Tesla sales.
Will Tesla be around in five years, or will the stock hit $300 in 2015? The jury still is out, and honestly I think there are good reasons to be skeptical of either scenario.
However, for the next 60 to 90 days, I think there’s nowhere to go but up.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
