Shares of Tesla (NASDAQ: TSLA) have certainly been revved up since reporting earnings. Tesla stock is now back within sight of all time highs, even after all the drama surrounding CEO Elon Musk. One blow out quarter, however, does not justify adding nearly $10 billion in market cap to a company that has major competition issues looming. Look for TSLA to stall out at current levels.
Tesla reported earnings on October 23 that smashed expectations. Earnings were $2.90 per share, crushing consensus estimates for a loss of 19 cents per share. Revenues also beat at $6.8 billion, well above the $6.3 billion expected. This was only the third quarter in the past 15 years, however, that TSLA stock reported positive earnings.
While no doubt the quarter was a welcome surprise, the ability to maintain the torrid pace has always been the real question. This is especially true given the fact that the federal tax credits of $7,500 are being phased out now that Tesla has reached the 200,000 milestone for qualifying sales. How much of the future demand has been pulled forward to this year is unknown, but certainly not inconsequential.
TSLA is running into major overhead resistance at the $350 level. Each time Tesla attempted to break past this area with any conviction it has always failed. Tesla stock is up over 90 points, or nearly 35%, in just the past 9 trading days after making an intra-day low of $252.59 on October 22. Shares are now extremely overbought on a 9 day RSI basis with a reading well over 70. Prior times when Tesla stock was at such frothy levels marked significant intermediate-term tops in the stock.
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Tesla stock now has a market cap of just over $58 billion following the recent red hot rally, well above the $51.45 billion market cap for General Motors (NYSE: GM). Yet GM had $35.8 billion in revenue in the latest quarter, more than 5 times that of TSLA. At some point valuations do matter and Tesla is definitely nearing that point.
Tesla stated it delivered almost 70,000 vehicles in the third quarter. If we triple that delivery number and annualize it (insane growth to say the least), that would equate to 840,000 vehicles per year. Using this methodology values Tesla at just shy of $70,000 per car sold, well above the $59,300 average selling price for the Model 3. Not sure how the math works on this, but to me it doesn’t work too well.
Investors and traders looking to add a short position to their overall portfolio will likely be well served taking a bearish stance in Tesla stock on the heels of a near historic rally. A meaningful break past the all time high at $390 would be a prudent stop out area. An initial profit objective is the support area at $300.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.