After being added to the S&P 500 in December last year, Tesla, Inc. (TSLA) has yet to slow its roll. The stock has returned 19.7% year-to-date, beating the S&P 500 and Dow Jones Industrial Average’s nominal gains over this period. TSLA has delivered stellar financials over the last five quarters and is expected to maintain this performance this year.
While TSLA’s sound fundamentals, technical dexterity, and widespread market reach have helped the stock gain 727.2% over the past year, the global automotive revolution should allow it to maintain its momentum.
As industrial and commercial production returns to full swing this year, governments of major countries are planning to drive their recoveries with clean energy. Moreover, incoming U.S. President Biden’s $2 trillion Green New Deal proposal should benefit TSLA over the next couple of years. This, coupled with several other factors, has helped TSLA 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 $629.62 and $375.87, respectively, indicating a golden-cross uptrend. The stock has gained 96% over the past three months, reflecting solid short-term bullishness.
TSLA reported impressive results for the third quarter ended September 30, 2020, surpassing analyst expectations. Its revenue has increased 39.2% year-over-year to $8.77 billion, while its gross profit has risen 73.1% versus the same period last year to $2.06 billion. Its net income and EPS grew 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 from a stock offering in September to fund its capital-intensive projects soon. TSLA is now working on developing a fully autonomous driving feature, which should be integrated in TSLA vehicles in some jurisdictions by 2021.In late December, TSLA signed a pricing agreement with Panasonic for lithium-ion battery cells. Under the agreement, Panasonic’s battery products, which have applications in TSLA’s Model X and Y, will be sold at contractual price until March 2021.
Moreover, TSLA has entered the Indian subcontinent. With a huge population and market base, the expansion into India is expected to ramp up TSLA’s profits. TSLA also has plans to open a new battery system project in Australia, which has been dubbed the ‘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 now venturing into other sectors. The company’s acquisition of Solar city in 2016 has given it a smooth entry point into the solar panel manufacturing industry. CEO Elon Musk expects this sector to become the next “killer product” by 2021.
Following the news release of Pfizer and BioNTech’s COVID-19 vaccine, Musk confirmed that TSLA became the manufacturing partner for German biotech firm CureVac and is currently developing RNA micro-factories and version three 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 3.8% below its 52-week high of $884.49, which it hit on January 8.
TSLA has gained 1,106.4% over the past three years. This can be attributed to its impressive earnings and revenue growth. The company’s revenues have increased at a CAGR of 37.9% over the past three years, while its EBITDA has grown at a CAGR of 165.7% over this period. TSLA’s tangible book value rose at a CAGR of 53.4% over the past three years.
TSLA’s dominance in the EV market has led to its impressive growth. Also, TSLA enjoyed a certain degree of monopoly power in the budding industry in the past because the biggest automobile companies in the U.S. were slow to join the EV race. TSLA’s strategic production facilities located in 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 51 stocks in the Auto & Vehicle Manufacturers industry. Other popular stocks in this space are Toyota Motor Corporation (TM), Honda Motor Company, Ltd. (HMC) and Ferrari N.V. (RACE).
TM and RACE have gained 5.8% and 21%, respectively, over the past year, while HMC declined marginally. This compares to TSLA’s 727.2% returns over this period.
Industry Rank: A
The Auto & Vehicle Manufacturers industry is ranked #4 of 123 industries in the StockNews.com universe. The industry is riding a clean energy wave drive as demand for EVs witness exponential growth worldwide. Given the higher efficiency of EVs and lower maintenance costs in the long run, EVs are increasingly the preferred choice by consumers versus traditional internal combustion vehicles.
Also, given the technological advancement in the overall EV industry, transition from gasoline cars to battery vehicles is expected to cost less compared to other industries that are fully committing to carbon neutrality. As a result, most economies are focused on kickstarting country-wide industrial transformations with the automobile industry. In this regard, major economies in Europe have announced bans on the sale of new internal combustion vehicles by 2035, and the U.S. is expected to soon follow suit given Biden’s stance on clean energy.
Overall POWR Rating: A (Strong Buy)
TSLA is rated “Strong Buy” due to solid short-and-long-term bullishness, impressive financials and underlying industry strength as determined by the four components of overall POWR Rating.
While a recent recall of TSLA’s vehicles shook investor confidence, the company has been taking active steps to improve its software services to prevent such incidents in the future. The company’s strategic entry into developing markets and increasing popularity should allow the stock to soar soon.
TSLA has an average broker rating of 1.91, indicating favorable analyst sentiment. Of 32 Wall Street analysts that rated the stock, 8 rated it “Strong Buy”. The consensus EPS estimate of $0.95 for the fourth quarter ended December 31, 2020 represents a 131.7% improvement year-over-year. The company has an impressive earnings surprise history also: it beat the Street’s EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $10.27 billion for the about-to-be-reported quarter represents a 39% rise from the same period last year.
More Great Investing Ideas?
TSLA shares were trading at $845.22 per share on Thursday afternoon, down $5.23 (-0.61%). Year-to-date, TSLA has gained 19.78%, versus a 2.86% 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...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|TSLA||Get Rating||Get Rating||Get Rating|
|TM||Get Rating||Get Rating||Get Rating|
|HMC||Get Rating||Get Rating||Get Rating|
|RACE||Get Rating||Get Rating||Get Rating|