Does Tesla Belong in Your Portfolio?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $188, 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 was facing a lot of pressure to perform during the first-quarter of 2014 to satisfy analysts calling for meaningful growth while its production remains bound by capacity constraints and the supply of battery cells for its Model S sedan remains a trickle. While the company is still moving to fulfill orders here in North America, it’s having to set aside units for delivery to China and Europe. Tesla is bound; it has the ability and the legs to run (and fast), but is shackled by chains and a lock — the key for which it doesn’t hold. Expectations for the first-quarter called for earnings 7 cents per share, down from 12 cents during the year-ago quarter, and revenue of $704.5 million, Tesla’s best quarterly performance figure ever, according to Bloomberg’s panel of analysts. Crucially, that’s without the zero-emissions credits, and represents a 25 percent leap over the same figure from the year-ago quarter.

Projections are also calling for the delivery of 6,429 Model S cars to Europe and North America. The estimates are closely bound, ranging from a low of 6,200 to a high of 6,600. Tesla itself was aiming for 6,400. As it turned out, Tesla beat on earnings with 12 cents per share, flat with the same period last year. It delivered 6,457 cars, just slightly beating out its own guidance, but impressively, it produced a record 7,535 vehicles, allowing it to fill its Asian and European pipelines. However, the stock is being dragged down in after-hours trading on Wednesday as Tesla, on a GAAP basis, reported a loss of 40 cents per share, or $50 million.

T = Technicals on the Stock Chart are Mixed

Tesla Motors stock has struggled to make progress over the last couple of quarters. The stock is currently pulling back and may need time to stabilize before heading higher. 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 between its rising key averages which signal neutral 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

55.47%

0%

0%

What does this mean? This means that investors or traders are buying a very small 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

Average

Average

July Options

Average

Average

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

0.00%

-83.55%

-86.96%

105.62%

Revenue Growth (Y-O-Y)

10.46%

100.84%

1102.65%

1420.08%

Earnings Reaction

-6.99%*

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’s recent earnings announcements.

* As of this writing

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

24.81%

-13.50%

-11.30%

3.01%

1.75%

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 on Wednesday reported quarter one earnings that left investors pleased. The stock has struggled to make progress and is currently pulling back. Over the last four quarters, earnings and revenues have been rising. 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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