Tesla: The Perfect Earnings Trade And The Company That's Set To Keep Running

| About: Tesla, Inc. (TSLA)
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Not unlike the company itself, the longs in Tesla have vision - they can see the forest through the trees. Musk and his team have my trust through proving they can meet goals and have the business acumen necessary to back up their idea for the future.

- QTR, 1/31/14

So - how about yesterday?

That should put a lid on some of the Tesla (NASDAQ:TSLA) shorts for a while, at least.

The automaker reported earnings after market closed yesterday, on a day where the stock traded down about 5% to end the day. After-hours yesterday and pre-market today see the company up about 13%. The guidance was the most impressive number that the company offered - claiming that it's expecting global sales to reach 35,000 vehicles next year, though it'll likely take the automaker some time to get some traction overseas still.

The company earned $46 million (EPS of $0.33) and it said it expects a 55% increase in its production. Like the company has already said, it's planning on pushing further globally - akin to the growth plans of U.S. automakers like Ford and GM. Expectations into the report yesterday were for EPS of $0.20 .

Seeking Alpha reported on some of the supplemental details:

  • Tesla Motors cruises past the profit estimate of analysts with its Q4 report, but ends up short of revenue forecasts.
  • The revenue haul for the quarter included $15M in regulatory credits, but no ZEV credit sales.
  • The automaker sold 6,892 Model S vehicles during the period (previously disclosed) and expects to move 35K Model S units in 2014 with deliveries back-end loaded.
  • Tesla's gross margin rate of 25.2% is in-line with expectations. By the end of this year, the EV automaker sees the gross margin rate closer to 28%.

For months now I've been opining that Tesla is a company that I trust until they give me a reason not to. Tesla has come out and met or exceeded almost all of its goals as a company thus far - so, why would you doubt them and try and stand in the way? Yes, the company has a lofty valuation, but one out of every couple thousand companies valued as such actually deserve it. For our time, Tesla is that one.

It was on February 10th that I predicted Tesla was going to be taking down $200 with ease:

From an investing standpoint, I continue to argue that the company is strong, even at its lofty multiple. Tesla has met its growth expectations and has the idea right to reshape the auto industry. If ever there was a stock that warranted a massive multiple, Tesla might be the case study.

With the company's technical momentum, and the macro market showing positive signs to end last week - even in the face of terrible jobs numbers - I'm expecting it won't be long before Tesla passes and holds $200/share. Long term, I remain bullish on the auto maker as well.

Then, just days ago, I offered my strategy on how I would trade Tesla earnings - a strategy that looks like it could almost be perfect if Tesla holds up but closes under $220 tomorrow:

TSLA $220 calls that expire on Friday this week are selling for a $5.19 premium per share right now. I'd be ripping off as many of these as I could and banking the premiums immediately. They carry almost no theta, are priced simply due to potential IV from earnings, and are a great way to hedge.

There's a couple of potential outcomes now from that trade - either Tesla is going to finish the week a bit above $220 and you're going to get an 8% upside to your original underlying shares plus the premiums you reaped. Or, the shares will finish the week under $220 (probably just barely, if it happens), and you're still going to be holding your underlying shares (which will be up 5-7% likely) and you'll have kept the premiums. Either way, it's looking like it was the safe trade to make for earnings, and one that's going to be lucrative for Tesla investors.

Thursday morning, Seeking Alpha also covered analyst sentiment the morning after:

  • Deutsche Bank takes its foot off the gas with its rating on Tesla Motors following its post-earning rally. Shares of the EV automaker are moved to a Hold rating from Buy.
  • Wedbush analyst Craig Irwin isn't scared off by Tesla at +$200 as he sees an enormous opportunity for the company to dramatically reduce battery costs over the next three to five years. Those are the same economies of scale Elon Musk referred to in his conference call (transcript) last night.
  • Stifel Nicolaus won't get sucked in by the Tesla frenzy. Analyst James Albertine argues share price got an unwarranted boost from the Apple acquisition rumor and makes more sense on a fundamental basis in the $120 to $150 range.

Additionally, it's worth noting that my long-term straddle suggestion for Tesla, which had a breakeven of $176.35, now is profitable by roughly $4400 per contract plus a month of theta. You can check out my past article on this trade here.

As I've said many times over, Tesla has the goods to be the company that revolutionized the auto industry. It commands the multiple it trades at because, so far, the company has executed and showed there's room for demand and growth. I continue to be bullish on Tesla long-term behind the leadership of Elon Musk and his team.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.