The TSLA Phenomenon and How to Play It

Written by GSCR Staff   
Thursday, 08 August 2013 08:21

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.

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