Should You Take a Chance With Tesla Motors?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $210, 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?

Standard & Poor’s said late Tuesday that the electric car company’s $2.2 billion in debt, due over the course of the next four to seven years, is a risky bet. Its reasoning: “Tesla’s narrow product focus, concentrated production footprint, small scale relative to its larger automotive peers, limited visibility on the long-term demand for its products, and limited track record in handling execution risks.” Tesla responded, “this is an unsolicited rating from S&P that was developed independently by their analysts without any feedback from Tesla on our growth plans.”

T = Technicals on the Stock Chart Are Strong

Tesla Motors stock has struggled to make progress over the last couple of quarters. However, the stock is currently moving higher and looks set to continue this path. 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 signals neutral to bullish price action in the near-term.

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

43.45%

20%

18%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of Wednesday, there is 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 minimal 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’s 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 had conflicting feelings about Tesla Motors’s 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), and Ford Motor (NYSE:F) — and sector?

Tesla Motors

General Motors

Toyota Motor

Ford Motor

Sector

Year-to-Date Return

40.18%

-15.8%

-9.97%

5.61%

6%

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. Standard & Poor’s said late Tuesday that the electric car company’s $2.2 billion in debt, due over the course of the next four to seven years, is a risky bet. The stock has struggled to make progress but is currently moving higher. Over the last four quarters, earnings and revenues have been rising. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, Tesla Motors has been a year-to-date performance leader. Look for Tesla Motors to continue to OUTPERFORM.

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