Tesla: Removing From Buy List Ahead Of Earnings
Depends On Your Valuation Take
Now with our earnings estimates of $8.18 for 2018 we can't have confidence in the valuation. If you want to give Tesla a 50+ PE for 2018 then you have upside in the shares. We're using a 40X PE for next year which gives us a lower target price than Friday's close.
Our Numbers Are Below The Street For Q2
We have a loss of $3.20 for Q2 versus the street at a loss of $1.94. Our earnings estimates for Q3 and Q4 are also below the street.
For that reason we can't allow ourselves to put a higher PE valuation on the shares.
High Short Interest
Almost 27% of the float is short. We typically like to see a high short interest if we are bullish. Good news forces shorts to cover pushing up the shares. Again, with our earnings estimates well below the street we don't want to lean on the shorts to bail us out.
Earnings Misses Don't Necessarily Mean A Down Stock
The company's stock can react poorly to negative earnings reports in the following week. As we know the stock then has rebounded on news of a production ramp.
We think risk though runs higher now because the Model 3 ramp is fairly well known this year. That means there probably isn't a lot of upside to earnings this year. Rather, the rest of this year factories probably run at lower factory utilization which is a drag to our earnings model.
As the Model 3 ramps in production next year that's where you'll see more leverage potential. We're guessing you don't see that leverage this year.
We're moving to the sidelines on this one. We think we'll get a better opportunity to buy it. If we miss it, we're ok with that. The risk does seem higher now.
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