Is Tesla Motors a Good Portfolio Play?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $239, 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?

“It was never my intention to be CEO. I tried to actually not be CEO quite hard,” stated Elon Musk, CEO of Tesla Motors. Musk is without question a great innovator. But is he a good manager and leader? Some have wondered, with his fingers in so many pies, is his intention for Tesla to be a hit and run project after which he’ll let somebody else take over the reins, or does he plan to stick around for awhile? Now that the hardest parts of development and adoption of its products seem to be in the company’s rear-view mirror, and operations are comparatively on cruise control, it makes one wonder: Is Musk on his way out? On June 3, Tesla Motors hosted its annual shareholder meeting, during which came an exciting, fact-filled, and inspiring question and answer session with Musk. First, Musk offered a bit of background coloring about the company’s accomplishments and other various bragging points, such as that Tesla’s vehicles have been driven close to 344 million miles without a serious accident.

Due to the software nerve center of the vehicles, Tesla knows exactly how many miles have been driven around the globe. Having over-the-air access to information about its vehicles is a very valuable tool for tracking safety, satisfaction, and reliability for the company so that it can make adjustments when needed. Musk reminded the crowd at the meeting that the company is production limited, as opposed to demand limited. The biggest issue has been the supply of battery cells, which is being alleviated gradually this year and into next. Tesla wants to eventually open what it calls a “Gigafactory” to solve the battery supply problem. It’s a long-term project that it has been implied that Musk will be staying around for but nothing had really been confirmed. Musk did say during the presentation that he really wants “people to love their car.” He added, “And in fact my goal is that people like the Model S more than their house. I think that is actually the case in some situations.” That’s another hint that he will stick around a while.

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 trending higher and looks set to continue. 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

46.82%

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

July Options

Flat

Average

August 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

58.69%

-9.86%

-2.71%

11.70%

-1.29%

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 stock has struggled to make progress, but is currently trending higher. 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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