Post-Annual Meeting and Pre-Q2 Results, Is Tesla Stock Worth Consideration?

Over the past week TSLA stock has bounced back from its recent lows, but the up move may not last for long

The bulls and bears of Tesla (NASDAQ:TSLA) were listening carefully on June 11 as co-founder and CEO Elon Musk took center stage at the electric vehicle maker’s annual shareholder meeting. By the end of the day, few minds from either camp were changed, as investors held to their beliefs on what might be next for TSLA stock.

Post-Annual Meeting and Pre-Q2 Results, Is Tesla Stock Worth Consideration?
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With Tesla expected to report second-quarter 2019 earnings in late July, now seems like an opportune moment to discuss what to expect in TSLA stock over the next few weeks, leading up to the earnings report.

Tesla Needs to Sell More Cars

At this point, Tesla has had several months of poor performance, both in its key financial metrics and the TSLA stock price.

Maybe the most important drivers of the poor Tesla stock performance right now is the decline in the number of vehicles being sold.

The past year has seen U.S. demand for EVs fall and TSLA’s Model 3 sales have not been at the levels expected, fueled in part when the EV credit was halved.

In his Q1 2019 update for shareholders, Musk said that Tesla’s production outpaced deliveries and this fact was set to continue in the near future. In other words, TSLA stock has a demand problem in the U.S.

As we discuss Tesla’s problems, we have to mention that the auto sector is susceptible to the trade-war risk. As U.S. demand declines, Tesla needs to make up for it with increased sales numbers overseas, namely China, the largest EV market in the world.

Yet, as weeks go by, not many analysts believe that the U.S. and China are likely to conclude a comprehensive trade agreement anytime soon. The negotiations may well drag out right up to the U.S. presidential elections in November 2020.

Therefore, it would be premature to expect that Tesla sales numbers in China will be able to make up for the decline in the U.S. in the coming months.

All these sales issues are now contributing to the constant talk of Tesla’s liquidity problem.

The shareholder meeting clearly tried to put a positive spin and an end to the otherwise never-ending demand questions the company faces. Yet, the jury is still out.

Given TSLA’s falling margins, could 2019 be the beginning of an unknown period for TSLA stock?

Where is TSLA Stock Now?

As of this writing, Tesla stock is hovering around $225 and year-to-date, the stock is down over 30%.

If you had not looked at TSLA stock price over the past few weeks at all, you would not necessarily have known what a roller coaster ride it had been for Tesla shareholders.

To recap, on April 3, Tesla stock saw an intraday high of $296.17.

On May 1, TSLA shares closed at $234.01.

Then, TSLA stock then gained more than 10% on May 2 and 3 as new regulatory filings showed that the company would be raising more cash in U.S. markets through a combination of new shares and convertible debt.

But between May 6 and June 3, TSLA shares went into a free fall as many analysts issued negative research notes and rather alarming price target updates on Tesla stock.

On Thursday, May 16, TSLA stock closed at $228.33. The next day, the stock gapped down to open at $221.96 and closed the week at $211.03.

Finally, on June 3, the share price hit a 52-week low of $176.99.

As of date, following the broad market rally over the past two weeks, Tesla shares are back over $220. Now investors are wondering whether TSLA stock can stay above this psychologically important level.

So Should You Buy Tesla Stock Now?

I am of the camp that TSLA stock price is likely to fall below $200 again in the near future.

Depending on news headlines, Tesla stock may trade sideways for several days, only to continue to pull back to make a lower low and extend the bearish trend.

At this point, I find the risk/reward ratio on the long side inadequate.

Therefore, before committing any capital into the shares, I’d like to see Tesla’s next earnings statement, expected in late July. By then, we might even have an earnings warning from TSLA, which would send the stock even further south.

If Tesla’s business model is indeed in trouble, a successful turnaround would possibly require a focus on cash and cash returns. Not focusing clearly on cash may send a company into a spiral that may become rather difficult to recover from.

Many investors would be hoping that the senior team at Tesla is currently asking the right questions and having honest discussions about the potential severity of issues.

When senior management at Tesla offers employees, investors, and Wall Street a concise and compelling change story, without too many fancy metrics and big words, the decline in TSLA stock price will likely come to a halt.

However, at this point, Tesla bears have the upper hand and I’d consider investing in TSLA stock a speculative bet.

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

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