Is this the pullback you have been waiting for? Over the Past week or so, I have written a few articles regarding Tesla Motors Inc. (TSLA) and it's recently drastic fluctuations in per-share value. Since last Thursday, the stock has appreciated roughly 60%, and many investors have been left clueless as to what to do from here. Today, I published an article (Tesla: Up, Up and Away) stating that there is still value in owning shares, even at their newly elevated levels. For those uncertain whether Tesla could continue higher, or uncertain regarding an entry point, today may have provided a prime opportunity. Although shares surged in pre-market trading and at the beginning of the day, they have pulled back significantly since the high of $97.12, providing a solid entry point for new long positions.
Shares slid this afternoon after reports that the state of North Carolina's State Commerce Committee approved legislation that could potentially curb the company's ability to direct-sell its automobiles to customers- a practice that the North Carolina Automobile Dealer's Association has deemed threatening to the current stability of existing auto dealerships. While this report has caused a noticeable ripple in shares of Tesla, it should be noted that this is a small speed bump for a company that is growing at a very impressive rate.
To recap the underlying growth story:
The future for Tesla is exciting, and growth is ramping at tremendous rates. Last Thursday, the company reported its first ever profit of $0.12 on revenues of $562 million. The company, which is now cash flow positive, has been taking aggressive measures to grow efficiency and to more effectively manage costs. With Elon Musk at the helm, the company has spent virtually zero dollars on advertising, and has realized a lower raw material cost- both of which helped to pad last quarter's earnings. Production capacity has doubled over the past few months, rising to 400 cars per week (20,800 per year). In his letter to shareholders last week, Elon Musk mentioned that orders for the Model S this year are projected to come in at roughly 21,000 units, meaning that the company is perfectly prepared to capitalize on the high demand for the Model S. Even gross margins have doubled over the most recent quarter, showing quality management and increased profitability. Musk offered guidance for a margin of 25% for the full year (currently 17%).
The fact is- Tesla has a ton of room to grow. In terms of sales, the company is a boy among men, as there is currently only one model in the fleet. With the overseas launch of the Model S coming in the fall of this year, demand in Europe has already outpaced demand here in the United States. Also, the Model S has been receiving rave reviews from rating companies and customers alike. In fact, Consumer Reports claims that the Model S is the "best car [they] have ever tested" and that "if it could recharge in any gas station in three minutes, this car would score about 110," giving it a rating of 99 out of 100, a rating only shared by only the Lexus LS460 (TM). There is real growth in the future for Tesla, and at a share price of roughly $85, it still looks attractive.
The fact of the matter is- this is a tremendous (and real) growth story. Tesla has the potential to double capacity and output year over year, and is expected to do so (as it achieves economies of scale, margins will increase as well). Earnings per share expectations for the year signal that the company will grow earnings by 20x in 2014. Today's roughly 6% pullback has leveled off the technical, and shows a strong entry point around $82. For those who have missed out on this historic run in shares of Tesla, it may not be too late to cash in the company's growth.
Disclosure: I am long TSLA. 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.