tesla

Would You Pay 11X For Tesla?

This isn’t easy but try to figure out why
we used this pic. No hints. Comment
in comments.

Would you pay an 11 PE for Tesla stock? Why not right? Ford and GM trade at low multiples. But Tesla’s about to have blow out earnings growth starting in Q3 as per their guidance.

We’re at about $27.00 in earnings for 2019 when factoring in 1) the gross margin ramp they saw in S&X in Q2, 2) their Model 3 unit plans through 2019 and, 3) the company’s gross margin targets for Model 3 which Musk reviewed on Q1 and Q2 earnings calls.

The stock price of $295 divided by our $27 gives you an 11 PE. Not bad, right, for one of the best earnings stories that exist today.

Two things that most did not notice but should have last quarter was the huge jump in S&X gross margins in Q2. They were up about 1000 basis points. They reached into the high-30s. That gives you some visibility that Model 3 margins also have upside.

Again, high-30s% gross margins for a car company? That’s not huge?

BMW and Mercedes are about 20% while the US manufactures are lower.

Musk’s focus on the machine being the production was proven out in that high-30s number for S&X. But you needed to back into that number, they didn’t outright say it. And who would want to go through that one extra step to try and figure that out? It’s probably the most important piece of their Q2 report.

Units are hitting the steep part of the S-curve Elon Musk has waiting for for some time. That steep part of the S-curve is causing blow out gross margins company wide.

You have too many bears rear-view mirroring it while earnings are about to explode starting this quarter, potentially.

In our experience what drives a PE are inventory turns and gross margins. The higher the both are the more a dollar of investment can turn-over so that dollar, so-to-speak, is worth more. That gives you a higher PE.

So we think Tesla’s PE should be closer to 50X, not 10X given its market leading gross margins. If they ever decide to drop price competitors are toast. Also what traditional manufacturer is going to want to mess up their earnings by scaling EV losses that Tesla now has behind them? It’s not an easy business decision.

Much like Netflix and Amazon spending big first, others are left to play catchup but never really catchup.

50 X our 2019 $27 = $1350. That would be nice, right? (Street’s at about $2.90 for 2019)

Quiz?
So why’d we use that pic up there?
Answer in comments.

Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

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We have no holdings in the stocks mentioned unless otherwise noted.

Sept 16, 2018 correction: picture change.

Tesla: Production Even Close To Estimates, Huge For Earnings

It was reported by Electrek that Tesla is apparently on track with their Model 3 quarterly ramp but below their 6,000 / week target.

The ramp is just so big that small misses don’t really matter. Worrying about such precise measurements misses the big picture.

Tesla even coming close to their targets means that Q3 deliveries would jump about 90% from Q2. If they continue this pace deliveries will be up 3X by Q2 next year from this year’s Q2.

Being high or low from those weekly, monthly, or quarterly targets misses the point.

…And Really Misses The Point For Earnings

What’s most exciting about the story is of course earnings. Earnings are what drives stock prices.

Any data that expects Tesla comes anywhere close to their production or delivery targets means huge things for earnings.

Analysts were in shock on Q2 as S&X gross margins jumped from Q1. They were up anywhere from 500-1000 basis points from Q1 to Q2.

Why?

CEO Elon Musk said, “as we improve efficiency, then gross margin and so the profitability per car just improves dramatically.”

Well you saw that in Q2.

What happens to gross margins if deliveries even come close to being up 90% in Q3 from Q2?

What’s going to happen to gross margins when deliveries are up 3-fold by Q2 next year?

We think gross margins are going to jump.

Shorts Missing The Forest For The Trees

Even with all the communication blunders or smart short stories out there, they all get erased as production ramps 90% sequentially and 3-fold year-over-year.

Remember, “as we improve efficiency, then gross margin and so the profitability per car just improves dramatically.”

That’s now.

Q2 deliveries were up 36% sequentially and gross margins jumped. So for Q3 if deliveries are up 90% sequentially what’s going to happen to gross margins? Look out.

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Looking For Tech Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Correction: added the word “sequentially” Sept 3, 2018, 9:57 AM EDT

Tesla: $420’s Way Too Cheap

If you read our Tesla (NASDAQ:TSLA) report on Thursday you’d agree that Elon Musk’s $420 bid is way too low.

He knows it’s way too low that’s why he blames the short sellers to take his business private so suddenly. It’s really that the business is way too cheap.

If you back into the S&X gross margins you get 37% for Q2. When you start to do the math for 2019 EPS you can see the Street’s too low by maybe $16/share. The secret sauce to the earnings model is the gross margins. They are ramping too fast. They are blowing other auto companies away.

No wonder he suddenly wants to take this private. We have a $900-1000 target on it based on what the company said about gross margin targets for Q3, Q4 and 2019.

Bears Way Too Bearish  

Too bad there were so so many bears and shorts. All that crazy negative media. First the CEO buys stock himself, now he says nope I’ll take the whole thing private.

How wrong were all those negative reports? It’s nuts.

As soon as they said they were targeting a profit in Q3 we said, “No idea how the shorts stay short.” That was in early June. We took heat for that comment.

If you want to see the model feel free to subscribe and you’ll see you don’t have much problem getting to $18-20 for 2019 based on everything they said over the last two quarters. The Street’s at about $3.00.

Proof is in the pudding. That’s why he’s trying to take this thing suddenly on the cheap.

But what about the shorts?

The shorts may not let this stock stay below $420 and may not let it stay down to $420. How do they get out? This could be a wreck higher.

Conclusion

$420’s way too low.

Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We are long Tesla for a customer.

Tesla: Largest Earnings Inflection Story I Remember

Tesla reported earnings. That’s just it. They will actually start to report positive earnings in Q3 and Q4. But they told us they would already. I guess investors finally get it that it’s approaching reality.

In June we said,

“If you’re short, how in your right mind do you say ‘la di da, no biggie'” that they are going to turn a profit.

Not only that, our earnings numbers go up huge.

Backing into this reported quarter S&X are deep into the 30s% gross margins. So if Model 3 hits their 15% gross margins in Q3 and 20% in Q4 the auto gross margins are going to start being huge. (I have no problem using the same word, huge, in an article countless times. Hope that’s ok.)

Also in Q1’s call CEO Elon Musk said 25% Model 3 gross margins was a possibility by Q4, so there could be upside.

The Street’s at like $2.00+ for 2019. Give me a break. Our EPS for 2019 go to $18 GAAP and $20-21 non-GAAP*. What PE would you like to use. You decide. Whatever it is you’re going to get a big price target on our numbers.

Shorts need to get out and institutions need to get in.

This is going to be the biggest earnings inflection story I think I can remember. Going from uh-oh losses and media-concerned bankruptcy, to see-ya later no monkey-business GAAP profit.

Stock’s going higher.

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Looking For Earnings Home Runs

We spoke to the top tech companies over the last few months to identify what tech stocks have home run earnings potential. Earnings are what drives stocks, especially tech stocks. Finding those few tech stocks that have realistic earnings trajectories way above the Street can give you conviction to see a stock through to big upside. Dip your toe in the water with a free trial.

START FREE TRIAL

Read Reviews

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We have no holdings in the stocks mentioned unless otherwise noted.

Tesla Shorts Didn’t Budge: Bullish

Elon Musk is single handedly running over the shorts. We wrote two weeks ago we had no idea how the shorts stay short. Musk let go of one his more powerful short body-blow-tweets yesterday sending bears reeling. I have no idea how much more punishment the shorts can take. We think the stock’s going much higher as we’ve been talking about.

The Don’t-Mess Tweet

Musk let go one particularly hard jab to shorts in the form of a tweet yesterday.

Here’s what he said, “They have about three weeks before their short positions explode.”

What’s in three weeks? Tesla typically issues their quarterly production and delivery report the first week following their quarter-end. That would be in about three weeks.

He implied that the numbers we’ll see in that coming report will be so good they’ll squeeze the shorts.

Source

Shorts, We Warned You

On June 7th we said we have “no idea how the shorts stay short.”

On April 13th Musk tweeted Tesla was gunning for profits in Q3 and Q4. Since then all we hear about is Tesla firing everybody with the intention to cut costs to reach break-even.

They’ve also been telling you they are on track to hit their Model 3 production target of 5,000 per week by quarter end. That’s a key metric to hit profits.

Knowing the company’s on track for both profits and production has to be too much risk for a short. How can you stay short with the CEO telling you your worst outcome is on its way?

That’s a risky game of chicken.

On May 17th we called for a “short squeeze run-up into the Q2 report.” That’s happening now.

On May 15th we pointed out Musk not being the only insider buy and gave the math for a $700 target.

Shorts Still Very High

As of the last data point May 31st, shorts are still up at their highs. Shorts are not budging. That means there’s more squeeze to go.

So Who’s Sending The Stock Up?

In a fast two week time-frame Tesla’s stock has moved almost 100 points. Not bad, right? We think there’s more to go.

Frankly we don’t think this move has been only short covering.

Big money managers have to be running the numbers we ran. If so they are in there buying too. If Tesla goes profitable in the back half they can make $14.00 next year. The Street’s at only $2.39 for next year.  If we’re right there is much more to go on the upside.

If so you have the shorts and large money managers about to fight for every share available.

Nice setup right?

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All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless.

We are long Tesla for a customer.

Tesla: No Idea How Shorts Stay Short

Tesla told you they are gunning for a profit in Q3 and Q4, which would be huge. Tesla just told you that their key metric, weekly production of Model 3s is on target. If you’re short, how in your right mind do you say ‘la di da, no biggie, it’s going down.’

That makes no sense. These shorts are going to get smoked.

Reminds Me Of Some Other Shorts

Ahead of earnings we said that Trade Desk and AMD shorts were in trouble because of expected good news. Both stocks were rocket ships.

Trade Desk is up 60% since earnings on May 10th and AMD is up 54% since earnings April 25th. I wish we could annualize that, right?

Short interest was high going into both Trade Desk and AMD earnings and, sure enough, good news smoked the shorts.

Tesla’s Percent Of Float Short

Trade Desk had about 33% of their float short and AMD had 22% of its float short.

Tesla has 31% of its float short and the short interest has been moving up.

I Don’t Understand How You Stay Short?

Tesla tells you they plan for a profit in the back half. They are quickly firing people, cutting costs and running to get to profitability.

Then they tell you their key metric, 5,000 Model 3s produced-per-week, is on track.

If I was a short (which I’m not and frankly I don’t want to be short because it leads to a depressing outlook on life hoping the world blows up before trading tomorrow plus markets go up over time plus shorts are crowded thanks to hedge funds having to be ‘hedged,’ whoops, got side tracked)… If I was short (which I’m not and ….) I have to acknowledge some incredibly huge management comments in my face. Then if I was short (which I’m not and…) and I saw the stock ticking higher and higher I have to cover and push that stock up even more.

That’s how a short squeeze works.  Shorts need to respect the data that’s out there. But I think shorts cemented their shoes into this one.

I think that’s how AMD and Trade Desk jumped so much on great news; lazy shorts and lots of them.

Conclusion

We’d expect shorts to blink sometime before we get to earnings in late July or early August which would mean higher stock prices sometime soon.

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Reading Comprehension
I don’t love shorting because
A) Hollywood is rallying against shorting
B) The EU’s new regulation GDPR doesn’t allow shorting in Google or Facebook
C) June is officially “I don’t want to short month”
D) It’s crowded and generally depressing
Answers in comments, please.

All investments have many risks and can lose principal in the short and long term. The information provided is for information purposes only and can be wrong. By reading this you agree, understand and accept that you take upon yourself all responsibility for all of your investment decisions and to do your own work and hold Elazar Advisors, LLC, and their related parties harmless. Model portfolio trades and positions are hypothetical to be used for directional analysis and ratings purposes. Elazar and its employees do not take individual stock positions to avoid front running and other potential customer related issues.

We are long TSLA for a customer.