Can Tesla Motors Keep Meeting Its High Expectations?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $250, 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 might be on the verge of disrupting two industries, warranting a share price of $320, says Morgan Stanley (NYSE:MS) analyst Adam Jonas, in a note to investors released Tuesday. It’s shares surged 11 percent to $241.18 in early trading on the Nasdaq after Mr. Jonas released his note. That new share price target is up from $153. Its shares have surged following an adjusted $46 million fourth-quarter profit and reports of rising production capacity and demand. Tesla is expected this week to announce plans to build a new battery factory along with partners that will be able to take raw materials in on one side and produce batteries out the other side, lowering the cost of battery cells. Mr. Jonas thinks that the cell production has the potential to have Tesla become a major competitor in the electrical grid storage business.

“Tesla’s request to disrupt a trillion $ car industry offers an adjacent opportunity to disrupt a trillion $ electric utility industry,” Mr. Jonas writes, in a note titled “Nikola’s Revenge: TSLA’s New Path of Disruption.” He estimates that Tesla will be producing 370,000 vehicles a year by 2020, up from 22,400 last year. By 2028, the company should be over 1.1 million units of production, and the Tesla’s out in service could be used as back-up grid storage for the utility industry. Much of the volume is connected to Tesla’s planned “Gen 3” vehicle, which the company aims to put out in 2017 with 200 miles of electric range and a starting price around $35,000.

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 all time highs and looks set to continue this path. 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

55.96%

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

March Options

Flat

Average

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

Tesla Motors

General Motors

Toyota Motor

Ford Motor

Sector

Year-to-Date Return

65.53%

-11.4%

-4.55%

-1.52%

13.01%

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 is expected this week to announce plans to build a new battery factory along with partners. The stock has been surging higher and is currently trading near all-time 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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