Is Tesla Motors an Attractive Investment?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $170, 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 dominated auto news reports last year for good and for bad concerning its flagship Model S. The company painfully defended itself when news reports started questioning the safety of its cars following three fires that were reported in the cars in a span of less than six weeks. Currently, the U.S. traffic agency is looking into the matter. However, it is important to note that Model S has already received a clean bill of health from the European traffic agency, an indication that its U.S. counterpart could also adopt the same conclusion. Besides the fires, Tesla Motors continues to receive praises from all corners of the world for the company’s all-electric cars. The Model S is a favorite of environmental advocates and the cars are granted several credits in the United States at both state and national levels. Countries in Europe also extend benefits, some of which come in form of price subsidies for drivers of the Model S.

T = Technicals on the Stock Chart Are Strong

Tesla Motors stock has been surging higher over the last couple of months. The stock is currently trading near highs for the year and looks poised 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 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

59.8%

53%

50%

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

February Options

Flat

Average

March Options

Flat

Average

As of Monday, 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 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

-86.96%

105.62%

113.95%

-1.27%

Revenue Growth (Y-O-Y)

1102.65%

1420.08%

1762.78%

677.88%

Earnings Reaction

-14.5%

14.34%

24.39%

-8.77%

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 Motor (NYSE:TM), and Ford Motor (NYSE:F) — and sector?

Tesla Motors

General Motors

Toyota Motor

Ford Motor

Sector

Year-to-Date Return

13.02%

-5.55%

-2.24%

7.06%

4.07%

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 dominated auto news reports last year for good and for bad concerning its flagship Model S. The stock has been surging higher and is currently trading near highs. 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.

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