Can Tesla Recharge Your Portfolio?

With shares of Tesla Motors (NYSE:ANF) trading at around $66.30, 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:

C = Catalyst for the Stock’s Movement

Tesla is a groundbreaking company, and the future is likely to be bright. However, that doesn’t necessarily mean it’s a good option for a portfolio at the current time. We’ll get to that later. In the meantime, let’s take a look at the many positives (or tailwinds) for Tesla:

  • Delivered nearly 5,000 Model S vehicles during first three months of the year
  • Crushed earnings expectations (more on this below)
  • Surpassed its own expectations for vehicles delivered
  • Increased full-year guidance for vehicles delivered to 21,000 from 20,000
  • Sales increased 83 percent year-over-year
  • Turned a profit
  • Model S rated 99 of 100 by Consumer Reports (more on this below)
  • Gross margins doubled to 17 percent

In regards to crushing earnings expectations, the average estimate was for $0.04 on revenue of $499.55 million. The results came in at $0.12 on $562 million.

In regards to Consumer Reports, a 99 of 100 for the Model S tied for the highest score ever given. Reasons for the exceptionally high score included power, pinpoint handling, and well-crafted interior. It didn’t receive a perfect score due to limitations such as long charging times, inability to travel long distances without a recharge, and subpar visibility.

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Now let’s take a look at some numbers. The chart below compares fundamentals for Tesla, Ford Motor Co. (NYSE:F), and General Motors Company (NYSE:GM).

TSLA

F

GM

Trailing   P/E

N/A

9.63

10.97

Forward   P/E

49.72

8.56

7.38

Profit   Margin

-95.88%

4.27%

4.00%

ROE

-227.22%

33.97%

15.22%

Operating   Cash Flow

-$266.08 Million

 $7.18 Billion

N/A

Dividend   Yield

N/A

2.80%

N/A

Short   Position

49.20%

1.90%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Weak  

The debt-to-equity ratio for Tesla is weaker than the industry average of 0.80. This will not make for happy times when interest rates increase.

Debt-To-Equity

Cash

Long-Term Debt

TSLA

3.74

$201.89 Million

$466.67 Million

F

5.99

$24.18 Billion

$107.60 Billion

GM

0.48

$27.20 Billion

$18.42 Billion

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T = Technicals Are Strong   

Tesla has outperformed Ford and General Motors over the past year, and that’s saying a lot.

1 Month

Year-To-Date

1 Year

3 Year

TSLA

60.55%

98.29%

122.50%

N/A

F

11.77%

11.11%

37.02%

27.35%

GM

14.81%

9.87%

42.49%

N/A

 

At $66.30, Tesla is trading above all its averages.

50-Day   SMA

43.21

100-Day   SMA

39.48

200-Day   SMA

34.72

 

E = Earnings Have Been Weak             

While revenue has consistently improved on an annual basis, earnings have failed to make any significant moves toward the profitable side (on an annual basis).

2008

2009

2010

2011

2012

Revenue   ($)in   millions

14.74

111.94

116.74

204.24

413.26

Diluted   EPS ($)

0.00

-7.94

-3.04

-2.53

-3.69

 

When we look at the last quarter on a year-over-year basis, we see phenomenal improvements in revenue and earnings.

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   millions

30.17

26.65

50.10

306.33

562.00

Diluted   EPS ($)

-0.86

-1.00

-1.05

-0.79

0.12

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Affordability! That’s all it comes down to. Of course, having the ability to drive long distances would also help, but if electric cars were more affordable than whatever car you own now, you would likely still consider a purchase. The Model S begins selling at $62,400, which is steep for a vehicle, especially in this economic environment. If Tesla can find a way to reduce costs so it can sell its vehicles for lower prices, then it will have the potential to dominate the industry.

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Conclusion

Over the long haul, Tesla will be a winner, but it’s going to be a difficult and windy road. The challenges the company faces will be reflected in the stock price, which means there will be extreme volatility up ahead. Today is a good day, and this month might be a good month, but it’s not going to be as easy as it seems right now, especially considering debt management. The macroeconomic picture is also cause for concern.

The basic point here is that Tesla is likely to continue its run until Bernanke unwinds or an external event spooks the markets. In that environment, Tesla will be far from a safe play and longs are likely to get hurt. However, over the long haul, there is an excellent chance that Tesla will be a winner.

Tesla is a long-term OUTPERFORM, but those looking for a trade should be very cautious. This stock isn’t likely to hold up well if the market falters.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro. These positions will have no impact on my articles as they are too small to matter.

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