Seeking Alpha

Wall Street Ele...'s  Instablog

Wall Street Elevator
Send Message
As a result of a motivational investing brainstorm session a few of us finance professionals (investment banking, consulting, private equity, venture capital) were going through, an 'Equities' thread was started over email, and after a few months of the thread's tremendous success, Wall Street... More
My company:
Wall Street Elevator
My blog:
Wall Street Elevator
View Wall Street Elevator's Instablogs on:
  • Go Long Tesla But Wait For A Better Entry Point

    Elevator Pitch

    Tesla, as headlined over the past few days, is a classic short squeeze. If you're looking to go long, wait for a pull back as currently lots of short sellers are forced to cover giving this stock a boost of buyers.

    Thesis & Catalyst For Tesla Motors (NASDAQ:TSLA)

    Tesla's earnings call was outstanding, and the company arguably gave conservative guidance going forward. Tesla is setting themselves up to beat their own guidance this coming year due to the following reasons:

    a) Tesla, per their 1Q 2013 shareholder letter, is assuming $0 Zero Emission Vehicle (ZEV) credit revenue since ZEV will only apply to 1/6th of worldwide sales. Previously, this ZEV credit accounted for 12% of their revenue, and while the ZEV credit may decrease, it doesn't look to be going to $0 revenue.

    b) Tesla raised their worldwide deliveries guidance to 21,000 from 20,000. This is conservative given their rapid growth. This number could easily reach 25,000 given the demand of their cars, and given that their supply chain is improving.

    c) 25% gross margin target outlook. This gross margin target,once again, is assuming $0 ZEV credit revenue. This gross margin target is comfortably achievable per the company's managements own statements in their earnings call, so it is likely that Tesla's end of year gross margin comes higher than 25%.

    Given all these positive factors for going long, and the meteoric share price hike, I am trying to find an attractive entry point. In doing so, I wanted to see the historical effects of a short squeeze, so I went back and looked at the NFLX historical prices since NFLX 4Q12 earnings in January were a similar situation with a high short float, and the company crushing expectations, while showing continued signs of growth.

    Valuation

    NFLX was trading at $103 prior to it's 4Q12 earnings in January. See below what happened in the coming days:

    The stock went from $103 --> $146 (next day; 42%)--> $169 (the following day; 65%) --> $192(2 weeks later; 86%) --> $174 (day of their 2Q earnings; 69%)

    TSLA was trading at approximately $56 prior to it's 1Q earnings last Wednesday.

    In the past few days, the stock has gone from $56 --> $69.4 (next day; 24%) --> $77 (the following day; 38%) --> $88 (the following day after: 57%) --> $97 (Tuesday, May 14th intraday high; 73%)

    There will be buyers at every drop in TSLA, but I believe there will be better entry points ahead. I would wait for a pull back to around $70-75 before hitting the buy trigger. If Tesla doesn't fall that low, I don't think this stock closes higher than $105-110 over the next 2.5 months prior to next quarter earnings release (15-25% from current levels, and approximately 90% from it's close prior to this previous earnings), so you can get in then.

    Variant View

    I could very well be wrong on a better entry point though if @elonmusk tweets tomorrow that they've raised their deliveries guidance from 21,000 --> 30,000, so choose an entry point you're comfortable with.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TSLA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: TSLA, long-ideas
    May 15 4:02 PM | Link | Comment!
Full index of posts »
Latest Followers

StockTalks

More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.