Is Tesla Motors a Hot Stock?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $214, 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?

As critics continue to fawn over Tesla Motors’ car, sales continue to grow, and the positive reviews and test results keep pouring in, it seems that the hardest part for the company right now is working with state governments to retain the legal ability to sell its Model S sedan within their borders. By and large, most states haven’t posed a problem, but a couple of them — namely Texas, New Jersey, Ohio, and a few others — have presented some pretty significant headaches for the company as local auto dealer associations were able to get into the legislative books first. However, due to public outcry or Tesla’s promise of investment, states seem to be warming up to Tesla’s direct-to-consumer model and are even finding ways for dealer associations to remain protected and allow Tesla to operate in its own manner. Ohio has joined Washington state with a solution along the lines of the latter, as a new bill being presented in Ohio’s legislature will allow Tesla to operate no more than three retail locations. That doesn’t sound like a lot, but it’s far better than the all-out ban that some were pushing for.

T = Technicals on the Stock Chart are Strong

Tesla Motors stock has been surging higher over the last couple of months. However, the stock is currently pulling back and may need time to stabilize. 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

60.22%

50%

48%

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

Put IV Skew

Call IV Skew

April Options

Flat

Average

May 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 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’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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-83.55%

-86.96%

105.62%

113.95%

Revenue Growth (Y-O-Y)

100.84%

1102.65%

1420.08%

1762.78%

Earnings Reaction

8.43%

-14.5%

14.34%

24.39%

Tesla Motors has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with 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 (NYSE:TM), Ford (NYSE:F), and sector?

Tesla Motors

General Motors

Toyota

Ford

Sector

Year-to-Date Return

44.13%

-15.20%

-8.58%

-0.10%

6.06%

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. A new bill being presented in Ohio’s legislature will allow Tesla to operate no more than three retail locations. The stock has been surging higher but is currently pulling back. Over the last four quarters, earnings have been mixed while 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.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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