Tesla Motors Inc (NASDAQ:TSLA) will report first quarter results after the close of trade on Wednesday. And ahead of earnings, the stock has broken below a key support zone, indicating that further down side may be in store.
Shares of Tesla ended Tuesday at $232, down 4 percent for the session.
Tesla Motors Inc Bears Have Regained Control
A look at the daily price chart of Tesla shows that the stock has had an almost vertical move higher since the lows of February. The close to 50 percent jump in shares was largely on the back of news that pre-orders for the Model 3 was approaching the 400K units mark.
However, the start of April saw bulls losing steam, with the stock entering in to a consolidating range. But as long as $240 was intact, the uptrend was in force. The widely followed Dow Theory classifies an uptrend as a series of rising peaks and rising troughs. Any break in this pattern and the uptrend is said to be over.
Unfortunately, that’s exactly what’s happened in yesterday’s trading session, when bears entered in droves and pushed shares below the key support zone of $240. The area around $210-$215, which coincides with multiple past price pivots, looks like the immediate target. If Tesla were to test those levels, it would translate to a roughly 10 percent decline from the current price.
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Tesla Motors Inc Q1 May Disappoint – UBS
The consensus on Wall Street is for Tesla Motors Inc (NASDAQ:TSLA) posting an adjusted loss of 60 cents per share on sales of $1.6B. However analysts at UBS, who have a “sell” rating on the stock, reckon that the electric car maker may surprise investors with a bigger quarterly loss and yearly sales miss. UBS forecasts Tesla to record an adjusted loss of 90 cents per share, while 2016 sales should hover around the lower end of the firm’s goal.
What’s even more worrying from an investor stand point is that “Tesla is grossly overvalued compared to its peers.” Writing in CNBC, Michael Pento, founder of Pento Portfolio Strategies notes that Tesla’s market capitalization is almost two-thirds of that of General Motors. “This is despite the fact that GM has a history of selling 10M cars at a profit each year…(while) Tesla sold less than 100K cars last year at a loss.”
Pento goes on to conclude that “Musk may be a genius…but the truth is that Tesla has an unproven business model and a stock that is massively overpriced…(it) is not a buy…no matter what earnings say.”