Tesla Motors: Is It Time to Buy Into the EV Revolution?

T = Technicals on the Stock Chart are Strong

As of November 19, the stock price is 7.85 percent above its 20-day simple moving average, or SMA; 9.62 percent above its 50-day SMA; and 3.43 percent above its 200-day SMA.

Since the beginning of 2012, the stock price has been in an upward trend, gaining 17.27 percent this year to date, and gaining 3.68 percent year over year.

The stock is trading in a 52-week range between $22.64 and $39.95 per share with a beta of 1.26.

E = Earnings Are Not Increasing Quarter over Quarter

Top- and bottom-line growth are both important in diagnosing how well a company is doing. Over the past five years, Tesla Motors has been posting steady increases in revenue, while earnings per share have been increasingly negative. This trend can largely be attributed with “start-up” costs, despite the company’s age. Not only is automotive manufacturing capital intensive, but Tesla has had to pioneer much of the technology it uses. Despite the earnings declines, recent events suggest early investments will pay off.

2007 2008 2009 2010 2011
Revenue ($) in thousands 73 14,742 111,943 116,744 204,242
Diluted EPS ($) (0.84) (0.89) (0.60) (1.63) (2.53)

Quarterly revenues also indicate ramping losses and some volatility in revenue. At pretty much any other company, the mounting losses would be a strong indicator of it steamrolling toward bankruptcy, but once again recent events would indicate otherwise in this case. Tesla’s business model is — perhaps foolishly, perhaps unavoidably — predicated on the idea that it will initially lose money.

That being said, it’s easy to look at losses and say “these are to be expected” and remain blind to underlying problems. But given the outstanding success of the Model S, it seems reasonable to conclude an earnings turnaround in the future.

Sept. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 June 30, 2012 Sept. 31, 2012
Revenue ($) 57,666 39,375 30,167 26,653 50,104
Diluted EPS ($) (0.63) (0.81) (0.86) (1.00) (1.05)

Eleven analysts predict fourth-quarter EPS to come in at a loss of $0.51 per share, and 1Q13 EPS to come in at a loss of $0.13 per share. Estimates for full-year 2013 earnings come in at an average of $0.16 per share. If the predictions represent a realistic trend, then earnings should turn positive sometime in 2013.

It’s worth pointing out that in three out of four of the past quarters Tesla’s earnings have come in below estimates.