Is Tesla Motors a Healthy Stock for Your Portfolio?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $229, is TSLA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Tesla Motors designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. The company also provides services for the development of electric powertrain systems and components, and sells electric powertrain components to other automotive manufacturers. It markets and sells its vehicles through Tesla stores as well as over the Internet. Consumers and companies are looking to save at the pump, and what better way to do so than with electric vehicles?

Tesla Motors received approval to expand the number of its company-owned stores to sell electric cars directly to consumers in Pennsylvania. The electric car manufacturer has been fighting against auto dealers across the country lobbying to prevent the expansion of its operations to sell directly to consumers. According to Tesla Motors, lawmaker in the lower chamber of the State of Pennsylvania passed the legislation allowing the increase of the number of its stores and service centers in the state. The lawmakers in the Senate of Pennsylvania approved the legislation last week.  Tesla Motors is now allowed to operate as much as five stores to sell its electric vehicles in Pennsylvania. The lower chamber voted 197-2 in favor of the legislation. The legislation still requires the signature of the governor. In a statement, Diarmuid O’Connel, vice president for business development at Tesla Motors said, “We hope the process in Pennsylvania serves as an example for how productive cooperation can lead to a win for all parties involved, dealers and legislators included.”

T = Technicals on the Stock Chart are Strong

Tesla Motors stock has been moving higher in recent times. However, the stock is currently pulling back and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Tesla Motors is trading above its rising key averages which signal neutral to bullish price action in the near-term.

TSLA

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Tesla Motors options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Tesla Motors options

49.67%

93%

90%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Tesla Motors stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Tesla Motors look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

0%

-83.55%

-86.96%

105.82%

Revenue Growth (Y-O-Y)

10.46%

100.84%

1,102.65%

1,420.08%

Earnings Reaction

-11.3%

8.43%

-14.5%

14.34%

Tesla Motors has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Tesla Motors recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Tesla Motors stock done relative to its peers, General Motors (NYSE:GM), Toyota Motor (NYSE:TM), Ford Motor (NYSE:F), and sector?

Tesla Motors

General Motors

Toyota Motor

Ford Motor

Sector

Year-to-Date Return

52.49%

-7.66%

-0.13%

12.12%

2.44%

Tesla Motors has been a relative performance leader, year-to-date.

Conclusion

Tesla Motors offers electric vehicles that consumers and companies are opting for over other luxury vehicles. The company received approval to expand the number of its company-owned stores to sell electric cars directly to consumers in Pennsylvania. The stock has been moving higher in recent times, but is currently pulling back. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, Tesla Motors has been a year-to-date performance leader. Look for Tesla Motors to continue to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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