Tesla is the most controversial stock because everyone has an opinion. Some think that Musk is a genius and everything he touches will turn to gold. And some believe it is simply the best car on the planet and they will keep that advantage in the future driving the stock price higher.
On the other hand some think that it is one of the worst run companies on the planet with a shockingly bad 10 earnings misses in the past 15 quarters. Or that in time it will have a PE 8 to 10 like a normal car company and it’s the best short in town.
That is the subjective side of things. So lets get objective by reviewing the 5 different aspects of our POWR Ratings quant model for evaluating stock.
Buy & Hold Grade = D
This is based on the long term momentum. Unfortunately shares are down nearly 25% over the past year which is a very weak showing. Most of that is driven by a round of 3 earnings misses in the past 4 quarterly reports. That fundamental weakness is driving technical weakness.
Trade Grade = F
Shares look even worse on a near term basis. As the S&P has rallied aggressively on the year, shares are down almost 32%. That is severe underperformance that makes the near term picture very unappealing.
Industry Rank = C
Here we have a bit of relief from the low grades in other categories. But its not great either as they are in the #81 industry out of 123. That is just a few ticks away from falling into an Industry Rank of D. The reason is that many investors feel that we are bordering on peak auto territory that leads to sales and profit declines for the group.
Peer Grade = D
Their stock price performance places it down at #18 out of 25 stocks in the industry. Again, most of the group has rebounded along with the overall market this year. So the stark underperformance of TSLA stands out as a sore thumb.
POWR Rating = D (Sell)
It should not be a shock that this was going to end poorly given the low grades for each of the constituent parts. My sense is that the operational stumbles of the firm are finally being noticed by investors and they no longer are comfortable giving shares a premium valuation. However, I would warn against people thinking this stock will go lower and lower.
I believe the share price action may finally be the warning that management needs to clean up their operational mishaps. It may not happen immediately, but anyone who makes a car this good should be able to have the same quality up and down the line of their business model. When that does come together, shares will rebound with gusto. Until that day comes, then odds point to continued share weakness.
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Tesla Inc NASDAQ: TSLA shares. Year-to-date, has gained 12.87%, versus a % rise in the benchmark S&P 500 index during the same period.
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