After the close on Wednesday, Tesla Motors, Inc. (TSLA) reported a surprising profit beat for Q113 that sent the stock soaring in the two trading days after the report. The stock that closed Wednesday regular trading at $55.79 soared to touch $81 on Friday. Did the earnings news, while encouraging considering the history of missing earnings estimates, actually change the direction of the profit picture for the company?
The leading developer of electric vehicles has been on a roll in the last couple of months with the stock soaring from $35 in mid-March to gain more than 130% by mid-day Friday. The bullish move all started when CEO Elon Musk famously tweeted about a profitable quarter and the stock has exploded ever since that day.
Is The Future Really Any Brighter?
While the top line appears brighter for Tesla, the actual bottom line numbers expected by analysts has become less positive. This divergence can lead to a future crash in the stock if not reconciled and turned around. Lets review some of the statements from the shareholder letter that were less than rosy:
- Zero emission vehicle (ZEV) credits to decline substantially in future quarters from $68 million during the first quarter of 2013.
- Model S deliveries for Q2 will decline to 4,500 as some cars will be in transit to Europe to open up that market.
- Lease program will lead to a Q2 loss.
- R&D expenses will increase as the pace of product development picks up for the Model X.
- SG&A expenses will increase primarily due to growth in stores and service centers.
These details aren't horribly damaging to the potential for Tesla as a maker of revolutionary electric vehicles. The numbers do question the ability to pay outlandish multiples for the stock.
Earnings Estimates Declining
The trend with Tesla remains mostly intact that future earnings estimates continue to collapse. In fact, the 2014 estimates dropped to $1.08 from $1.34 prior to the Q1 release. The numbers have dropped from $1.62 only 90 days ago and according to Reuters they started out around $2.57 a year ago.
Table - EPS Trends
Tesla Motors has a lot going on for it as a company, but too many times investors confuse the company with the stock. The stock currently trades at nearly 70x earnings with a history of missing estimates. The recent news does provide some conviction that the company could actually thrive as an auto manufacturer, but amazingly the normal investor had already assumed Tesla would be the leading producer of electric vehicles by paying up for the stock. The stock is impossible to short at this junction, but the ability to generate huge returns for investors is limited at these levels. A stock that has gone parabolic with a 130% gain in less than 2 months has never made a good investment especially with earnings estimates plunging.
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