Believe it

tsla stock tesla model s
Sponsored By:

TSLA – Why I’m Still a Tesla Stock Believer

Tesla (TSLA) is a very divisive stock.

TSLA stock teslaOn one hand, you have the TSLA bears who talk about the forward price-to-earnings ratio of 100 and the brand tarnish from a spate of recent battery fires. There’s also concern among some analysts about Tesla earnings and the difference between adjusted and non-adjusted profits that could be masking weakness.

On the other hand are the TSLA stock believers, who tout Tesla Model S appeal among consumers and point to big backorders even despite increased production. There’s also Telsa expansion into Europe and China to look forward to in 2014 and beyond.

After a 340% run YTD in 2013, there really is no middle ground on TSLA stock. You’re either a bear or a believer.

And here’s why I am a Tesla stock believer — so much so that I even invested some of my own cash in TSLA on the recent pullback:

5 Reasons to Buy TSLA Stock

Tesla Fundamentals: Forget sentiment and marketing, and just look at Tesla numbers. TSLA doubled its revenue from $204 million in 2011 to $413 million in fiscal 2012. This year, revenue will hit $2.3 billion. Furthermore, Tesla turned its first quarterly profit in Q1 2013 ahead of schedule and is now operating in the black. Next year, earnings will jump from just a few cents a share to more than $1.40 per share, according to estimates. We can debate valuation, but you can’t dispute the balance sheet.  

International Growth: Oh yeah, and that growth came on U.S. expansion only. Tesla raised more than $300 million in 2013 via a secondary stock offering and recently entered into China and Europe to sell Tesla Model S sedans, so expect this growth to continue in 2014 as Elon Musk takes his electric vehicle company around the world.

TSLA Brand Power: The Tesla Model S sedan won the highest-ever Consumer Reports rating for a vehicle. It also won the government’s highest safety rating — five stars from the NHTSA. Sure, no company remains dominant forever … but if you think the Tesla brand will crumble overnight, you haven’t met many Model S drivers. These folks are enthusiastic evangelists of the Tesla brand! Furthermore, TSLA is synonymous with electric vehicles, unlike Ford (F) that is best known for its trucks among many consumers.

Long-Term Electric Vehicle Revolution: This isn’t just a Tesla story. Electric vehicles are the way of the future, with the Volt, the Prius plug-in from Toyota (TM) and the Nissan (NSANY) Leaf all racking up more than 10,000 units in sales each this year. In other words, the EV market is seeing growth across the board right now; it represents about 4% of the auto market — and is expanding fast the same way the hybrid segment did about a decade ago. With plans for a Tesla Model X SUV and Tesla Model E midsize sedan in the works for 2014, TSLA is not just growing sales of its existing Model S but opening up new product lines for a big footprint in this important part of the auto market.

Sentiment Shift: It was fair to call for caution when Tesla was pushing $190 a share. But at $150, things look much better. Consider that when Wall Street firm Baird downgraded Tesla stock to “neutral” several weeks ago, it was with a price target of $178 — and on fears that “any hiccups in execution” posed a big risk thanks to unrealistic expectations. In other words, it wasn’t that Baird lost faith in TSLA … it just worried that investors weren’t’t acting rationally. Now that we got a pullback, the hype machine isn’t running on overdrive and cooler heads prevail.

I could be wrong on TSLA stock, as I am with so many of my personal calls. But long-term, I believe in the electric vehicle segment snagging market share and I believe that Tesla is best positioned to ride this trend.

If you do, too, consider buying Telsa shares now that they’ve come back to earth.

More on TSLA stock

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he held a long position in TSLA stock. . Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP

Get The Slant delivered to your inbox every day!

Comments
  • Alexander Shaskevich

    I agree with this article. When TSLA was at 190 it was a little high. TSLA should finish the year at 160. Sal Demir wrote a full scale analysis on TSLA back in July on Seeking Alpha. There he laid out the full scope of why to buy TLSA and the financials on how sales and costs were shaping up for the future.

    I would suggest anyone interested in investing in TSLA read his article and look at the numbers very closely. If TSLA is above those numbers then sell, it TSLA is below then buy.

  • Justin

    I bought Tesla @ 25/share, sold at 188, then bought back in at 120. Holding to mid 200s in 2014. Then re-evaluating based on election.

  • Steve H

    Jeff, for what it’s worth there is not a heated debate among analysts about Tesla’s valuation.

    Other media coverage has created a sense of false balance, don’t let it fool you!

    Twelve covering brokers have a mean price target of $162, and a median price target of $187. Here’s the kicker… those bullish averages INCLUDE the one bearish stunning outlier target of $45 by John Lovallo of Merrill Lynch. Back his number out and the mean of the remaining 11 analysts goes up to $173 (I don’t have the data needed to adjust the median without Lovallo).

    So watch out for the false balance… 11 analysts with a $173 average target, 1 with a $45 target, but keep your eyes peeled for how frequently Lovallo gets quoted in articles to create a false impression that valuations are all over the map.