TSLA – A Have or Have Not?

In yesterday’s Goldman Guide we delved into the current market dynamics of the “Haves”, which included the DOW 30, and the “Have Nots”, which include Twitter (NASDAQ – TWTR) and LinkedIn (NASDAQ – LNKD).  We have occasionally commented on Tesla Motors, Inc. (NASDAQ – TSLA - $216.61) on Twitter and the Market Monitor over the past year or so as sort of a ‘tweener” stock that is more about potential then actual sales and market penetration.  The question is where does TSLA go from here?

The figure below is the one year price history for TSLA.  The stock skyrocketed over 350% from about this time last year to 52-week highs over $250 in early March.  Since then the stock is down 14% to the current price level.

Tesla Motors, Inc. (NASDAQ – TSLA) 1-Year Price Chart

(Source – Yahoo Finance)

Remember our 12 New Tactics for Investment Success from last Monday’s Goldman Guide?  The first part of our assessment had to do with valuation.  TSLA forward 12-month P/E is estimated at 56, versus 19 for the Russell 2000 and 16 for the S&P 500. The 5-year PEG ratio of 3.45 is also not that stellar.  Strike One.  Tesla Motors also has large debt positions with almost $90 of debt per every $1 of equity, another bad sign.  Strike two.  Finally, Tesla Motors’s negative operating and profit margins are also not in favor in current market conditions.  Strike three.

While we think the 0.1% growth in GDP in 1Q14 is more due to the miserable winter, and a blip on the radar, but we also would not expect the economy to grow any more than 2.5% per quarter the rest of the year.  And the bottom line is Tesla still makes a luxury item.  Orders could drop off if the economy does not pick up.  We say take some profits here and/or set a bottom of $175 for TSLA.

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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