Tesla (NASDAQ:TSLA) stock owners have enjoyed an incredible week. Tesla stock soared $45 per share last Thursday, rising nearly 18% in a single session.
The company’s blowout earnings report triggered the huge move, causing a surge in bullish activity while forcing the short sellers to run to the exits. In case that wasn’t enough, the TSLA stock price continued its amazing ascent.
The next day, Tesla climbed another $28 per share, making for a total move of more than 25% upward in just two trading days. While TSLA stock slipped a bit Tuesday, it’s still up an incredible amount over the past week.
And, at least at first glance, this looks like a sustainable move higher for TSLA stock. In the past, Tesla shares have gone up on temporary bits of enthusiasm, such as the takeover rumors or vague chatter about future potential product launches.
Unlike those past times, however, this latest TSLA stock surge has some real fundamental power behind it. As such, at least one analyst is suggesting that Tesla’s stock may be at an inflection point. Let’s take a closer look at what that means going forward.
Skeptical Analysts Give This Quarter a Big Thumbs Up
The professional analysts have offered rave reviews for Tesla’s most recent quarter. For example, let’s look at the commentary from Daniel Ives and Strecker Backe, who cover TSLA stock for Wedbush.
Ives and Backe have been quite subdued in their outlook for Tesla stock. They had a neutral rating and a $220 price target heading into the earnings report. Even now, after the earnings beat, they still have a neutral rating on Tesla shares, so they’re not incurable optimists. That makes the following commentary even more bullish for TSLA stock as they’re not long-time cheerleaders for Musk and company.
So what’d they say? They noted how Tesla has been able to put up strong delivery numbers previously. And yet, the company has struggled to convert any momentum in vehicle sales into earnings.
The problem with the Tesla stock thesis, for a long time, has simply been that the company can’t routinely generate significant profits or operating cash flow from their deliveries. Now, Ives and Backe say that a new era has dawned in Fremont.
A Picasso-Like Earnings Report
The new era would be one in which Tesla actually generates profits on a consistent basis. To that end, Wedbush’s analysts write that:
“Tesla delivered a Picasso-like quarter […] with profitability and EBITDA approaching $900 million (Street was at $646 million) that speaks to a business model which has significantly lower costs, more production efficiency, and automotive gross margins approaching 23% which is extremely impressive on the heels of the lower margin Model 3 shift. As Musk talks the talk and usually has not consistently delivered, last night Elon & the team walked the walk in strong fashion as 3Q looks to be an inflection point quarter for the Tesla story”.
They weren’t willing to go full bullish on Tesla stock just yet. The analysts are maintaining a “wait and see” approach to TSLA stock now with a particular focus on how profit margins evolve going forward.
Regardless, they believe that this is a major step toward proving that the “Tesla turnaround story is real”. Clearly traders have drawn similar conclusions, given the historic run in TSLA stock since the earnings release.
Bears Lick Their Wounds
Some TSLA stock bears have totally given up. Fund manager Harris Kupperman, for example, stated that Elon Musk has “clearly won this most recent battle.” Kupperman covered his whole short position at $295/share even though he continues to believe that the company is a “fraud.” He’s far from the only bear I’ve seen who has completely exited the trade or greatly pared back their position.
For the bears that remain negative on TSLA stock, they have a few main concerns about this seemingly excellent quarter. For one thing, Tesla still isn’t growing much. Deliveries were essentially flat even as average selling price continued lower; only higher leasing volume helped the top-line.
Also, Tesla’s positive operating cash flow seems to have enjoyed a one-time boost from tinkering with its working capital, mainly by paying vendors more slowly. That’s great for a one-quarter earnings increase. Bears would argue that Tesla needs to show sustained improving results, however, as Tesla has produced other quarterly earnings increases that quickly reversed themselves three months later.
Tesla Stock Verdict
I’ve been harsh on TSLA stock in the past. I’ve certainly criticized Elon Musk on occasion when he’s failed to deliver on his promises. But I’m not a Tesla short-seller in large part because I respect Musk’s incredible charisma and passion. It’s hard and often expensive for folks who try to bet against Tesla. Elon Musk has an amazing ability to overcome hardship and find a way to keep on pressing forward.
And with this quarter, Musk has done it again. Against all odds, Tesla figured out a way to deliver legitimately strong results including that surprise profit figure. Has Tesla resolved all the questions around its long-term business model and prospects? Not even close. Is TSLA stock a bargain given the latest results? No.
But Tesla has its momentum back, it has enough cash to keep running for a while, and there are exciting developments such as the China production facility in the pipeline. In other words, Tesla is no Nio (NYSE:NIO), it has sufficient financial strength to keep pushing along for years to come.
Tesla stock owners have reason to feel good heading into 2020. And TSLA stock short-sellers should really reconsider their positions. Tesla may eventually crash and burn (it is still a high-risk operation after all) but Tesla is steady for the time being, and the bears are taking huge losses blindly pressing their bets even as Tesla’s results have improved.
At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities. You can reach him on Twitter at @irbezek.
