The TSLA Phenomenon and How to Play It

Yesterday, Tesla Motors, Inc. (NASDAQ – TSLA - $134.17) announced quarterly financials after the market closed.  The stock skyrocketed in after hours trading based on news the company was profitably earning $0.05 per share and $405 million in revenue.  The stock is up nearly 300% for the year.

In my mind, there are three ways to look at the recent success of the stock: Earnings, Company Positioning (as a cynic, a “tree hugger” or as a macroeconomist/efficient market hypothesis (EMH) disciple.  With most points of view, the ‘truth’ is probably somewhere in between.

On a side note, if you are a steady reader of our Market Monitor or Goldman Guide, you know that we definitely come down on the side of the free-market and little to no government intervention in the private sector.  That does not mean we have a negative opinion of the entire government subsidized U.S. ‘green energy’ industry.  On the contrary we initiated coverage of BluForest, Inc. (OTCQB – BLUF) a carbon offset firm this morning. Plus, we highlighted Renewable Energy Group, Inc. earlier this year in the Market Monitor and the stock is up over 66%.  Renewable or green energy can work in a lot of applications but still has a long way to go from efficiency vs. cost perspective.

Anyway, back to Tesla.  The cynic will say that this company is a sham, and without taxpayer dollars it would be another Solyndra.  The tree-hugger would point to the recent success of the stock and inflow of capital as proof that a majority of those in the investing public are becoming ‘believers’.  Finally, the EMH disciples would say this is merely the result of a largely Fed induced bull market and the effect of the investing public diversifying a portfolio with capital having to go somewhere that pays a decent return.  They are all probably right and wrong to some degree.

Here is a breakdown of the company from our Market Monitor angle.  First, the short-term technical analysis remains on the bullish side and very bullish for EMA specifically.  Second, the consensus analyst earnings have the Company coming in slightly negative regarding EPS for 2013, but turning a profit in 2014.  This is primarily due to the expectation that Tesla will deliver the Model X to the market next year, which is expected to be over $100,000 sticker.  Finally, the Company currently has a back order for the Model S Signature models.  Clearly, favorable trends have accelerated the Company’s success.

In Monday’s Goldman Guide, we discussed the supposed jobs recovery, and that ZeroHedge.com reported 10x more jobs as restaurant servers or bartenders than in manufacturing.  This tells us that there is not a line waiting in the new millionaires club.  There is no doubt that there are enough high end consumers who want to portray the image of being environmentally conscious, as evidenced by the backlog.  Having said that, to buy the stock without a safety net at current levels may be too risky especially given the high price per share.  Going forward, the stock momentum will depend in large part on the Company hitting the positive earnings estimates next year.  An option play might be in order here if you want to mitigate that risk.  There are some chances to take some serious up-front cash in a covered call strategy, particularly in the March 2014 expiration contracts.

Have a great day.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

Disclaimer:

This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports. 

It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations. 

The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.

This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.

ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS   INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.

For more information, visit our Disclaimer: www.goldmanresearch.com