Should Tesla Motors Be in Your Portfolio?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $234, 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?

Goldman Sachs (NYSE:GS) analyst Patrick Archambault might have set a new precedent for valuing shares of Tesla Motors after some recent number crunching on his end implied that Tesla could (emphasis on could) hit a stock price of $478 — about double where the stock stands as of Tuesday morning’s trading. Archambault’s report comes after Goldman increased its six-month price target on the shares to $200, which would represent a 15 percent fall from current levels.

Not surprisingly, Archambault’s $478-per-share scenario relies on a fair amount of theory based on variables that Tesla would have to meet. In his model, Archambault sees the company as being a monumental disruptor of the auto industry and initiated three different scenarios to help describe his logic, which pictures CEO Elon Musk as Steve Jobs, Henry Ford, or the Maytag repairman, Charley Blaine wrote for 24/7 Wall Street. He then illustrated his thesis by describing Tesla’s early sales akin to growth rates for Apple’s iPhone, Ford’s Model T, and a basket of appliances like washing machines to map the possible Tesla results.

Archambault even quoted some variables as being less favorable than the company’s outlook allows. For example, he sees Tesla’s production rising to around 500,000 units in 2022, rather than Tesla’s own stated projections that such a figure will be reached in 2020.

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 trading sideways and may need time to consolidate 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 above its rising key averages, which signals 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

57.03%

10%

8%

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

57.09%

-14.2%

-10.4%

0.58%

9.26%

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. Goldman Sachs analyst Patrick Archambault implied that Tesla could hit a stock price of $478. The stock has been surging higher but is currently trading sideways. 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 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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