Want a clue on when Tesla earnings season is approaching?
Pay attention to the absurdist claims around the company. Sometimes the statements will come from Wall Street analysts who cover the stock. Sometimes the off-the-wall news will come from its CEO, Elon Musk. And sometimes, you’ll even see a random post on Twitter from Musk’s mother.
This week, we got another taste of the whirlwind that is Tesla’s growth expectations. First, let’s take a look at what’s happening in the news. But then, let’s focus on what matters.
Is Tesla a “buy” heading into earnings on July 26?
What Won’t They Do?
On Feb. 7, 2018, Tesla was set to report a very important update on revenue and deliveries. Wall Street had expected that the company would report strong sales numbers and an uptick in production.
It was an ugly earnings report. Tesla did blow things out of the water on revenue, reporting a then annual record of $3.3 billion. But it also reported a staggering quarterly loss of $771 million in the fourth quarter of 2017. That loss was on top of a negative cash flow figure of $276.7 million. It also had a net loss of $2.24 billion for all of 2017.
Now, it could be a coincidence. But ahead of that earnings report, in January 2018, Musk found a way to distract from any future bad news. He announced that The Boring Company – his private geoengineering firm – had a new product.
Musk announced his company was selling propane-powered flamethrowers.
And why not? His company sold out of them in a week.
It was a perfect distraction. And it seems like there has been no shortage of distractions on Twitter over the years. Whether he’s buying Bitcoin and putting it on the company’s balance sheet…
Or his mother is posting his high school test scores on Twitter….
Or he’s talking about digging tunnels under the city of Los Angeles (in an earthquake zone, of all places)…
Tesla has always been “made of Teflon” when it comes to bad news.
And Musk has always gotten the last laugh. Tesla traded at a split-adjusted price of $68.75 on Jan. 29, 2018.
Today, the stock sits north of $645.
So, what story is the media focusing on now ahead of earnings? Well… it’s not deliveries or profits.
It’s flying cars.
Morgan Stanley Sticks to Its Guns
Morgan Stanley has one of the highest price targets on Tesla at $900 per share. Only the research firm Oppenheimer has a more bullish price target.
It’s fitting that Morgan Stanley offered a very bullish report on the stock this week. But the report wasn’t about positive business developments over the next six months.
Morgan Stanley went bullish on Tesla for the year 2050.
The investment bank says that Tesla stock could be worth $1,000 because the auto company might commercialize a flying car in 29 years.
“The chance that Tesla does not ultimately offer products and services to the [flying car] market is remote,” Morgan Stanley said.
Now, here’s the thing that is crazy about this report. Not the fact that we’re talking about central plot points from “Back to the Future Part II.”
Morgan Stanley analyst Adam Jonas admitted that neither Tesla nor Elon Musk has ever mentioned flying cars.
The reasoning comes because Musk has focused on space travel, autonomous cars, and other advanced technology. That technology includes ambitious plans to build tunnels around the country.
“So, that’s it then… We’ll have Teslas on our roads, underground in tunnels… [and] on Mars. But not in Earth’s skies? Well… we’re not convinced,” Jonas said.
The analyst says that a flying-car business would add $100 to the stock right now – adding to the existing $900 target. Combine the two, and you get the $1,000 forecast.
But let’s take a step back from this projection.
This is an important lesson for investors. The hype is real. And when we see analysts speculating on technology that doesn’t exist, it’s a good time to be a bit skeptical.
Tesla is a costly stock. That doesn’t mean it’s a great company. But around earnings season, what matters is what investors think about its prospects today. Not in 2050.
Not even the great forecasters know where we’re going to be in 12 months. So, buying and holding stock because of what one renegade Wall Street analyst said could cost you a lot of money. Instead of speculating, you can find comfort in the fundamental and technical tools that we provide you.
What’s on Tap for Tesla
We want to focus on the trend that matters the most: price.
Tesla stock is currently sitting in the Green Zone on TradeSmith Finance. That makes it a buy. But it’s important to note that it has traded in a sideways momentum trend for a while, and the risk is sky-high. The TradeSmith Finance Red Zone for TSLA starts at $423, indicating that is when the stock would be acting outside of its normal volatility range. If you buy or own Tesla, that is our recommended exit point.
Is it possible that Tesla surges to record levels? Of course – and the trailing stop will automatically rise to reflect that increase and to help protect your principal and profits. But remember, for every Morgan Stanley or Oppenheimer analyst speculating that Tesla is a $1,000 stock or more, there are TSLA bears.
Bernstein analyst Toni Sacconaghi projects $180 per share over the next 12 months.
Itay Michaeli at Citigroup says $159 per share.
And Gordon Johnson – the permabear of Tesla bears – says $67.
If you’re using TradeSmith Finance for trailing stops, you’ll never even sniff those bearish levels. Tesla would stop out well above these price targets.
We don’t know who is right or who is wrong. All we know is that analysts expect earnings per share of $0.93 on top of $11.47 billion in revenue, according to Estimize. Delivery estimates come in at 207,981 vehicles, according to the same source.
These are the numbers that matter and what investors will react to come next week. It’s a necessary time to remember that you need to have your trailing stops in order.
And you should continuously diversify your portfolio across the full electric vehicle space if this is an investment interest for you.
I’ll be back on Monday with an incredible thesis on why history has treated gold as the top store of value.