Tesla (NASDAQ:TSLA) shareholders have had a roller coaster ride of late. But the TSLA stock ride has mostly been headed downward, as the chart below shows:
And there’s reasonably good reason for this drop in the Tesla stock price too: It’s all tied to the company’s eccentric, outspoken and unconventional CEO.
The entire PR machine is in fact geared to serving Elon Musk, whose energy and initiative are the main driving forces behind the company’s progress toward production and other milestones, and also a key driver or detractor for TSLA stock.
This has made his name synonymous with the company he helped create, while relegating to the background all the other people that supported him. It has also meant an overly publicized production schedule and yo-yoing sentiments for Tesla stock, as targets were missed or met (we haven’t seen any above-target performance in TSLA yet).
He also took to Twitter’s (NYSE:TWTR) popular platform to tell people that he was taking the company private, only to backtrack on that a few days later. The result: Musk is being investigated by the SEC for misleading investors, though the overall impact on TSLA stock from this may be limited.
For good measure, he recently used a TV show to smoke some “legal” weed.
So just when you’re thinking, the PR can’t get worse, the unpredictable CEO takes it a step further.
Should Investors Count TSLA Stock Out?
Musk’s personality may be charismatic and add to the charm of owning a Tesla vehicle, but TSLA stock investors typically like to be able to predict things. Similarly, employees can achieve more with a stable environment at work. And it doesn’t help that an entire company seems to be dancing on one man’s whims.
There have been suggestions that the company, and Tesla stock, may be better off without Musk, but he doesn’t seem to agree.
So what if anything can be the impact of the PR fiasco, executive departures, SEC investigation and personal digressions of the CEO on the company? And how achievable are the goals/targets it has now set for itself? These are the main questions for Tesla investors at this point.
TSLA says it will be cash flow positive by year-end (earlier the target was by the third quarter). So let’s see if its operating metrics look like they are headed in that direction:
As evident from the chart above, TSLA’s revenues have been growing steadily over the past two years (up 215% between June 2016 and June 2018).
Cost of goods sold has grown 240%.
Opex has grown 142%.
As a result, the loss before interest and tax is up 268%.
From the above, it’s clear that for Tesla to generate profits, the rate of increase in COGS has got to come down, which is unlikely to happen during a product ramp. It won’t be until the Model 3 process matures and volumes pick up significantly that this will happen. Doesn’t matter what Musk says.
Then there’s the cost of financing (interest), which has also been mounting over the last two years (up 256%) even as the debt level grew 258%. While TSLA appears to have taken on additional debt at favorable interest rates, the situation could change if it loses key people that can generate the required results.
There’s over $2 billion of current maturities and Tesla needs to refinance at attractive rates. Also note that the debt/cap ratio, at 71.1%, is too high.
Bottom Line on Tesla Stock
Elon Musk has set some lofty targets for Tesla and there’s reason to believe that the company will eventually get there. The highly automated assembly lines also indicate that the ramp up will probably be faster than for traditional car makers. But profitability and positive cash flow don’t appear to be on the horizon, at least not in 2018. And that has investors in Tesla stock worried.
That being said, everything is going well for the company in terms of demand and market opportunity, despite the constantly increasing competition. So if you’re willing to wait it out a bit, the TSLA stock picture should be much clearer in another six months. And to be honest, we shouldn’t be looking at stock in Tesla on a quarter-to-quarter basis, but rather how those quarters are adding up. And they seem to be adding up rather well for now.
Recommendations
Tesla stock carries a Zacks Rank #3 (Hold). For better opportunities, see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5 Medical Stocks to Buy Now
Zacks names five companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.
New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.
Click here to see the 5 stocks >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Twitter, Inc. (TWTR): Free Stock Analysis Report
Tesla, Inc. (TSLA): Free Stock Analysis Report
.jpg){kind=link}