Tesla (TSLA) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Over the past month, shares of this electric car maker have returned +44.4%, compared to the Zacks S&P 500 composite’s +6.4% change. During this period, the Zacks Automotive – Domestic industry, which Tesla falls in, has gained 38%. The key question now is: What could be the stock’s future direction?
Although media reports or rumors about a significant change in a company’s business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Earnings Estimate Revisions
Here at Zacks, we prioritize appraising the change in the projection of a company’s future earnings over anything else. That’s because we believe the present value of its future stream of earnings is what determines the fair value for its stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Tesla is expected to post earnings of $1.01 per share for the current quarter, representing a year-over-year change of -5.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -17.4%.
The consensus earnings estimate of $4.37 for the current fiscal year indicates a year-over-year change of +7.4%. This estimate has changed -16.7% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $5.25 indicates a change of +20.2% from what Tesla is expected to report a year ago. Over the past month, the estimate has changed -14.3%.
Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock’s price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Tesla is rated Zacks Rank #5 (Strong Sell).
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:
12 Month EPS
Projected Revenue Growth
While earnings growth is arguably the most superior indicator of a company’s financial health, nothing happens as such if a business isn’t able to grow its revenues. After all, it’s nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it’s important to know a company’s potential revenue growth.
For Tesla, the consensus sales estimate for the current quarter of $23.9 billion indicates a year-over-year change of +27.4%. For the current and next fiscal years, $101.96 billion and $123.36 billion estimates indicate +25.2% and +21% changes, respectively.
Last Reported Results and Surprise History
Tesla reported revenues of $24.32 billion in the last reported quarter, representing a year-over-year change of +37.2%. EPS of $1.19 for the same period compares with $0.85 a year ago.
Compared to the Zacks Consensus Estimate of $23.73 billion, the reported revenues represent a surprise of +2.48%. The EPS surprise was +9.17%.
The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates two times over this period.
Without considering a stock’s valuation, no investment decision can be efficient. In predicting a stock’s future price performance, it’s crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company’s growth prospects.
While comparing the current values of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock’s price.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
Tesla is graded F on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
The facts discussed here and much other information on Zacks.com might help determine whether or not it’s worthwhile paying attention to the market buzz about Tesla. However, its Zacks Rank #5 does suggest that it may underperform the broader market in the near term.
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Tesla, Inc. (TSLA) : Free Stock Analysis Report
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