After months of speculation, Tesla, Inc. (TSLA) has finally been added to the S&P 500 Index. It was also added to the S&P 100 list. This has been a long time coming: the company has reported profits for five consecutive quarters, with impressive growth rates surpassing analyst expectations. However, the stock has declined 6.5% since its inclusion in the index over rising concerns around overvaluation and low profitability.
TSLA is currently undertaking active efforts to increase its profitability through extensive research and development in battery technology. It aims to integrate a tabless battery system into its vehicles, which should significantly reduce the costs.
As the EV industry girds itself to hit new operational highs amid surging demand and government incentives, TSLA has plenty of upside left, we believe. This, coupled with several other factors, has helped the stock earn a “Strong Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates TSLA:
Trade Grade: A
TSLA is currently trading above its 50-day and 200-day moving averages of $533.94 and $390.58, respectively, indicating a golden-cross uptrend. The stock has gained 32.7% over the past month, reflecting solid short-term bullishness.
TSLA reported impressive results for the third quarter ended September 30, 2020, surpassing analyst expectations. Its EV deliveries increased 7% year-over-year (subject to operating lease accounting) over this period. Revenue increased 39.2% year-over-year to $8.77 billion, while gross profit rose 73.1% from the same period last year to $2.06 billion. Its net income and EPS rose 131.5% and 68.8%, respectively.
TSLA plans to launch three new electric vehicles soon, including the Tesla Cybertruck and two electric cars. It plans to invest up to $12 billion in electric vehicles and battery factories over the next two years, with manufacturing facilities in three continents.
The company raised $4.97 billion through an at-the-market stock offering in September to fund its capital-intensive projects soon. TSLA is currently working on developing its fully autonomous driving feature, which is expected to be integrated in TSLA vehicles in some jurisdictions by 2021.
Moreover, TSLA is reportedly planning to launch its products in India in 2021. With a huge population and market base, the expansion into India is expected to ramp up the company’s profits. TSLA also has plans to open a new battery system project in Australia, which has been dubbed as ‘Big Tesla Battery’. In this regard, TSLA partnered with French renewable company Neoen to develop 300/ 450 MWh in South Australia.
After successfully dominating the electric vehicle industry, TSLA is currently venturing into other sectors. The company’s prior acquisition of Solar city in 2016 has given it a smooth entry point in the solar panel manufacturing industry. CEO Elon musk expects this segment to become the next “killer product” by 2021.
TSLA also entered the tequila business on November 7, launching its uniquely shaped tequila bottles through its official website, which sold out within hours.
Following the news release of Pfizer and BioNTech vaccine, Musk confirmed that TSLA became the manufacturing partner for German biotech firm CureVac and is currently in the process of developing RNA micro-factories and version 3 vaccine printers.
Buy & Hold Grade: A
In terms of proximity to 52-week high, which is a key factor that our Buy & Hold Grade considers, TSLA is well-positioned. It is currently trading just 6.5% below its 52-week high of $695, which it hit on December 18.
TSLA has gained 879.7% over the past three years, owing largely to its robust revenue and earnings growth. The company’s revenue and EBITDA has increased at CAGR of 37.9% and 165.7%, respectively, over the past three years. Its total assets rose at a CAGR of 17.6% over the same period.
TSLA long-term dominance in the EV market has led to its impressive growth over the past few years. Also, TSLA has enjoyed a degree of monopolization in the budding industry in the past because the biggest automobile companies in the U.S. had not joined the EV race in earnest. Also, its strategic production facilities located across areas with high potential demand have allowed the company to keep its production costs relatively low.
Peer Grade: A
TSLA is currently ranked #1 of 34 stocks in the Auto & Vehicle Manufacturers group. Other popular stocks in this space are Toyota Motor Corporation (TM), Honda Motor Company, Ltd. (HMC) and Ford Motor Company (F).
TM, and HMC have gained 6.9% and 0.3%, respectively, over the past year, while F lost 5.8%. This compares to TSLA’s 701.1% returns over this period.
Industry Rank: A
The Auto & Vehicle manufacturers industry is ranked #2 of 123 StockNews.com industries. This industry is riding the clean energy wave as demand for EVs experience exponential growth worldwide. Given the higher efficiency of EVs and their lower long-term maintenance cost, EVs are on course to become consumers’ preferred choice versus traditional fossil-fuel-powered vehicles.
Also, given the technological advancement in the overall EV industry, transition from fossil fuel cars to battery vehicles is expected to cost less compared to other industries that fully commit to carbon neutrality. As a result, most economies are focused on using the automobile industry to kickstart country wide industrial transformation.
Overall POWR Rating: A (Strong Buy)
TSLA is rated “Strong Buy” due to short- and long-term bullishness, underlying industry strength, and impressive financials, as determined by the four components of overall POWR Rating.
TSLA’s strong growth momentum and industry dominance has allowed the stock to become one of the biggest gainers of 2020. It is the largest EV manufacturer in the world and is likely to witness a rush of demand from around the world as the clean energy drive propels demand for EVs.
TSLA has an average broker rating of 1.91, reflecting favorable analyst sentiment. Out of 32 Wall Street Analysts that rated the stock, 8 rated it “Strong Buy”. The consensus EPS estimate of $0.88 for the current quarter ending December 31, 2020 represents a 114.6% rise year-over-year. Moreover, TSLA has an impressive earnings surprise history; it beat the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $9.97 billion for the ongoing quarter indicates a 35.1% improvement from the prior-year quarter.
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TSLA shares were trading at $636.31 per share on Tuesday afternoon, down $13.55 (-2.09%). Year-to-date, TSLA has gained 660.54%, versus a 15.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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