It's Almost Time To Load Up On Tesla

Seeking Alpha2023-04-11

SummaryTesla, Inc.'s massive rally has consolidated for months now.I see some reasons for caution at the moment, but remain longer-term bullish.Risk/reward here is terrific if you use stops prudently....

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Comments

Guavaxf30
2023-04-12
Guavaxf30
Thanks for this. For me, the strategy would be to waitfor below 165. And then decide when to buy, if at all. No point Joning the FOMO crowd that I am seeing the last few weeks
Seah CL
2023-04-12
Seah CL
K
Nggimseng
2023-04-12
Nggimseng
Nice
PooYen
2023-04-12
PooYen
[Happy] [Happy] [Happy]
MIe
2023-04-12
MIe
TeslA upside as rates end game n rates cut later
Cheryi
2023-04-12
Cheryi
Ok
- Cheryi:
  ok

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My viewpoint on the U.S. market for 2023 is quite bullish, and that’s predicated on growth and tech continuing to outperform. We’ll see consolidation periods and selloffs, of course, but I maintain that we’ll see much higher prices in the U.S. equity markets at the end of this year than where we started.Perhaps the most followed growth stock is Tesla, Inc. (NASDAQ:TSLA), and the last time I covered the stock was about seven months ago. Much has occurred since then, to say the least. TSLA stock went to a well-publicized low of $101, but quite swiftly doubled off of that low. It’s one of the best performing stocks in the U.S. market so far this year, which is incredible given its size.The stock has been consolidating since the high, and we’ll touch on that below. However, so long as we hold the zone of support below, I’m maintaining my buy rating on Tesla. I’m not uber-bullish right now, but I still believe the medium and long-term trajectory is higher.Charting the courseWe’ll begin as we always do, with the chart. Tesla is in a consolidatory phase right now, having lost key moving average support in recent days.ChartStockChartsWe have three local tops, which I’ve connected with the blue line above. There are lower highs being made, and there’s very strong support in the area of ~$165, which has to hold for the bulls; if that level is lost, look out below for a potential test of $100. I don’t think that’s going to happen, but I would not recommend Tesla should it lose that support level.I mentioned the moving average support that was lost, and you can see where the rising 50-day simple moving average in blue above was used as support in early March. That line was lost a few days ago, and the stock fell further after losing it. This is not a bullish development and it’s giving me pause in terms of wanting to run out and buy the stock.The accumulation/distribution line still looks outstanding, and very bullish. It measures whether big institutional money is buying dips or selling rips, and we are firmly in the former category for Tesla. That’s a bullish sign that the stock is being accumulated, which tends to indicate longer-term bullishness.The 14-day RSI looks good as it continues to hold the 40 level, which is bull market behavior. The PPO is also testing the centerline, and we’ll need to see a bounce fairly soon to keep that bullishness alive.To sum this up, given the loss of the moving average support, and lower highs being made, I would not be surprised to see a test of the $165 area. Should that occur, Tesla would be a great buy as the risk/reward would be outstanding. For now, it’s in no-man’s land.The bottom panel has the stock’s correlation to the 10-year Treasury yield, which is key given the rate environment we’re in today. We can see Tesla’s long-term correlation to the 10-year Treasury is highly negative, which means 10-year Treasury yields and Tesla stock move in different directions. This makes perfect sense as higher rates mean lower valuations for growth stocks, and vice versa. Given that, it makes sense to look at yields, and we’ll do that now.ChartStockChartsThe 10-year is testing absolutely critical support in the area of 3.3%, and given the look of momentum, I would be absolutely shocked if we don’t get a breakdown of yield, which is the same thing as a breakout of price, given price and yield move inversely. Point being, if I’m right about the direction of rates, Tesla and other growth stocks should do very well indeed.Fundamentals a mixed bagWe all know the automakers are struggling with supply chain issues, and have been for some time. Of course, there are plenty of industries still grappling with the challenges that COVID presented across the globe. That means there are still wait times across the industry for various types of vehicles, dealer lots remain under-inventoried compared to pre-COVID norms, and rising loan interest rates that are crimping consumers’ ability to pay.It is, perhaps, no wonder that estimates have come down for Tesla from a revenue perspective in recent months.vehicle deliveriesInvestor presentationTesla has seen dips and pauses in vehicle delivery numbers in the past, but it appears to my eye that another one is a low probability. The company is seeing massive growth in China, as well as continuing to play around with U.S. pricing of its models. Much digital ink has been spilled about pricing actions from Tesla, but it seems pretty clear to me that these actions are being done out of a position of strength, not weakness.market shareInvestor presentationSo long as these lines move up and to the right, I’m not bothered with pricing actions. Every firm in every industry wants market share gains, and Tesla has them.revenue revisionsSeeking AlphaThat being said, revenue estimates are headed lower in the past several months, which is less than ideal. So long as revenue estimates are falling, the stock may struggle to make a significant move higher. However, if/when they do turn higher again, look out above in terms of the stock price.I normally would place more weight on revenue estimates, except that Tesla’s margin profile has continued to get better and better over time. What that means is that it is in a position to generate higher profitability on each dollar of revenue, and gives it the freedom to do things like cut prices. As I said, strength, not weakness.Below, we have gross and operating margins on a trailing-twelve-months basis for the past few years for some context.Both have moved sharply higher over time, but what’s interesting is that operating margins have continued to grow while gross margins have actually declined in recent quarters. In the first quarter of 2022, gross margins were 27.1% of revenue, while operating margins were 15.5%. That’s a difference of 11.6%. The most recent quarter (with fresh earnings due out in a couple of weeks) was 25.6% and 16.8%, respectively. That’s a difference of 8.8%, which means the gap between operating margin and gross margin is contracting fairly rapidly. That’s an excellent development as it means that each dollar of revenue is becoming more profitable, despite declining gross margins. Imagine what would happen should the company focus on building gross margins again.Regardless of whether the company continues to focus on market share, or decides to go after more margin, the future is bright and be in no doubt; pricing actions are being done from a position of strength.Cash is kingOne problem Tesla used to have – and one that I was very concerned about a few years ago – is cash burn. We all know Tesla expanded extremely rapidly over the past few years, which takes cash. However, not only does the company not burn cash any longer, but its balance sheet is absolutely outstanding.Net debt is now down to a net cash position of more than $16 billion, which has numerous benefits. Tesla no longer needs to borrow money or issue stock to fund development. It can make acquisitions, it can invest that cash for additional income, or it can expand at whatever pace it deems necessary. That includes things like rapid expansion of gigafactories, development and refinement of new and existing models, etc. Cash used to be the single biggest issue for Tesla, but now is a massive source of strength.How has Tesla built a fortress balance sheet? Free cash flow (\"FCF\").TTM FCF is up to $7+ billion, and FCF margin is consistently in the area of 9% to 11% of revenue. These are terrific numbers, and judging by the build in cash on the balance sheet – which is happening simultaneously with factory expansion globally – it’s more than sufficient. Should these numbers decline over time, concern will reign again. But I see no cause for concern here.Finally, let’s take a look at EPS estimates, which, like revenue, don’t exactly look that great.EPS estimates have come way down since late last year, but have plateaued. Is that it in terms of downward revisions? Time will tell, but anyone that’s familiar with my work knows I very much prefer rising EPS and revenue estimates. We don’t have that here, and that’s why I’m more cautious than I normally would be.A look at valuationsLet’s start the valuation conversation with price to sales, which we have below for the past three years on a forward basis.Today’s forward P/S ratio is 5.7X, which is very near the bottom of the range. We could argue the days of 19X forward sales were frothy, and they almost certainly were. But the point stands that – from my perspective – Tesla is stronger than ever in many ways, while sporting what can only be considered a low forward P/S ratio.Similarly, the forward P/E ratio just continues to fall, as the stock is seeing 46X forward earnings today, compared to an average of 110X in the past three years.I’m not going to try to convince anyone that 48X forward earnings is cheap, because we all have our own feelings on relative value. I’m also not going to value Tesla like a traditional automaker, because it isn’t one, and that’s a pointless exercise. I will, however, value the stock against its own historical tendencies, and just like revenue, I cannot see how Tesla, Inc. stock shouldn’t be considered reasonably valued at worst here.Do I think we’ll see 110X forward earnings again? No. Is there upside potential to 60X or 70X? If I’m right about lower interest rates and a tech/growth bull market, then absolutely there is. For me, that’s the consideration. If we get a bull market in tech and growth this year, more so than what we’ve already seen, stocks like Tesla have enormous upside potential. If I’m wrong, you have the $165 area where you can stop out and take your loss. From a risk/reward perspective, we’re looking at Tesla, Inc. perhaps $20 on the downside, but ~$60 to the upside given $4 in EPS estimates times a 60 forward P/E.I can already hear the laughing of value investors scoffing at the idea, but I follow the money, and it looks to me like Tesla, Inc. is attracting it in a big way. I’m maintaining my buy rating on Tesla stock, but am refraining from a strong buy given some of the concerns listed above. The closer we get to $165, the better the buy.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":9942576404,"gmtCreate":1681262968009,"gmtModify":1681262972838,"author":{"id":"3576140222331577","authorId":"3576140222331577","name":"Guavaxf30","avatar":"https://static.tigerbbs.com/1ff15ff6aa254c9130f9af922f7e2447","vip":1,"crmLevel":9,"crmLevelSwitch":1},"htmlText":"Thanks for this. For me, the strategy would be to waitfor below 165. And then decide when to buy, if at all. No point Joning the FOMO crowd that I am seeing the last few&nbsp;weeks","listText":"Thanks for this. For me, the strategy would be to waitfor below 165. And then decide when to buy, if at all. No point Joning the FOMO crowd that I am seeing the last few&nbsp;weeks","text":"Thanks for this. For me, the strategy would be to waitfor below 165. And then decide when to buy, if at all. No point Joning the FOMO crowd that I am seeing the last few weeks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9942576404","repostId":1116529806,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9942598627,"gmtCreate":1681251257670,"gmtModify":1681251262562,"author":{"id":"4102135564535180","authorId":"4102135564535180","name":"Seah CL","avatar":"https://community-static.tradeup.com/news/970bca7b04e85a42a2c8eabed7ec96d0","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"K","listText":"K","text":"K","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":8,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9942598627","repostId":1116529806,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9942505890,"gmtCreate":1681249397511,"gmtModify":1681249400833,"author":{"id":"3586164268210037","authorId":"3586164268210037","name":"Nggimseng","avatar":"https://community-static.tradeup.com/news/0f4a59087543e775843eb0622ae81fe7","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":1},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":13,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9942505890","repostId":1116529806,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9942506355,"gmtCreate":1681248414477,"gmtModify":1681248417915,"author":{"id":"3576743360399762","authorId":"3576743360399762","name":"PooYen","avatar":"https://static.tigerbbs.com/90f2bad6620330727869f3a5a51a046a","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"[Happy]&nbsp;[Happy]&nbsp;[Happy]&nbsp;","listText":"[Happy]&nbsp;[Happy]&nbsp;[Happy]&nbsp;","text":"[Happy] [Happy] [Happy]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":14,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9942506355","repostId":1116529806,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9942277835,"gmtCreate":1681244257128,"gmtModify":1681244261189,"author":{"id":"3577182936341023","authorId":"3577182936341023","name":"MIe","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":5,"crmLevelSwitch":0},"htmlText":"TeslA upside as rates end game n rates cut later&nbsp;","listText":"TeslA upside as rates end game n rates cut later&nbsp;","text":"TeslA upside as rates end game n rates cut later","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":16,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9942277835","repostId":1116529806,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9942244793,"gmtCreate":1681237566413,"gmtModify":1681237569881,"author":{"id":"3568940106394782","authorId":"3568940106394782","name":"Cheryi","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":5,"crmLevelSwitch":0},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":18,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/9942244793","repostId":1116529806,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":106282243,"gmtCreate":1681237573514,"gmtModify":1681237579770,"authorId":3568940106394782,"author":{"id":3568940106394782,"authorId":3568940106394782,"name":"Cheryi","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":9942244793,"type":1,"supId":0,"prevId":0,"content":"<u>ok</u>","text":"<u>ok</u>","html":"<u>ok</u>"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":133,"commentSize":0,"repostSize":10,"favoriteSize":4,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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