Tesla (NASDAQ:TSLA): Q1 EPS of -$0.57 beats by $0.01.
Revenue of $1.6B (+45.5% Y/Y) in-line.
Tesla Motors Inc just released earnings at the close of market Wednesday.
The firm has been a Wall Street darling and investors have shown their faith in Elon Musk and his dream by trusting him with their money. Investors love the firm so much that they do not mind placing bullish bets on the future of the firm even though it trades at 125X 1yr future earnings.
Nonetheless, today’s earnings report will provide insight to investors on whether the bullish fundamentals are still in place for the firm. Wall Street is concerned that the firm might have stretched itself too thin and that there won’t be much positive surprises in today’s earnings report. In fact, it appears that the positive surprises have already been priced into the stock after it recorded almost 400,000 preorders of its mass market Model 3 with a $1,000 refundable deposit.
Interestingly, investors are adopting a cautious note towards Tesla and the firm closed with a loss of 3.92% at a $232.32 trading price on Tuesday.
Valuation reveals fanatical love for Tesla
The discussion on whether (or not) Tesla Motors is undervalued, reasonably valued, or overvalued is a matter for another day. However, the facts of the firm’s current valuation shows that investors think that the stock is worth much more than its rivals and other players in the auto market. To start with, the firm delivered 52,000 cars in 2015 and it has a market cap of $31.24B. General Motors on the other hand sold a record 9.8 million cars in 2015 and it has a market cap of $48.04B.
In essence, Tesla’s $31B valuation suggests that investors think its stock is worth $620,000 for every car that it delivered last year. In contrast, General Motors’s market cap of about $48B suggests that investors think GM’s stock is worth $4,800 for very car it sold last year.
Elon Musk has revealed that he plans to have sold 500,000 cars by 2020. If we take Tesla’s current market cap of $31.24 to account for the 500,000 cars that it plans to sell by 2020; we would notice that investors expect each of Tesla car sold by 2020 to be worth $62,480.
From the foregoing, it is obvious that Tesla has its valuation somewhere in the clouds – the earnings report can shed light on Tesla’s ability to live up to expectations. Interestingly, James Angle, a Business Professor at Georgetown University opines that “This stock is definitely priced to perfection. If he pulls everything off, it’s probably worth its current value, but there’s a huge amount of execution risk here”.
Execution risk brings the bears out on Tesla
The fact that Tesla Motors has a valuation that is over the top has attracted bears that are shorting the stock in droves. The firm currently sits on the list of 10 most shorted firms by market cap in the world. Tesla short interest position of 29.07M is worth more than $6.7B. Short interest in the stock has increased by 5.05% in the year-to-date period while the stock has lost 3.29% in its trading price in the same period as shown in the chart below.
Ihor Dusaniwsky, S3’s head of research at a financial analytics firm, S3 Partners notes that the short interest in Tesla is worrisome. In his words, the rising short interest is “not just day traders coming in and out of the market. This is fundamental guys who have put it in their portfolio and are saying, ‘We don’t believe this valuation is correct.”