Short Term Technicals Finally Look Better For Tesla
Today's action was a mini-short term breakout. The first of it's kind since the stock's been in a spiral-free-fall. There is still medium-term risk to lower levels, say 90 but for now technicals are giving it a chance to go up.
We called out to subscribers October 20th, "If TSLA breaks 200 there is giant downside risk as I see it."
We had been big bulls ahead of 2022 which many of you may have known but got off the train in late 2021 when the stock hit our target, just as the rest of the world was all going to buy ratings.
Throughout this year based on fundamentals and technicals we've mostly been cautious on TSLA. Currently, for the first time since I've been following it my earnings estimates are about inline with the Street. Previously, as in the last few years, my estimates were multiples higher than the Street. So fundamentally, for me there's simply less upside and a lots been built in.
Still Risks For Tesla Stock
There's still risk for the stock and the company. For the stock, CEO Elon Musk is heavily margined and even though he promises not to sell, he may not be in full in control of that.
Fundamentally, I think it's still relevant today but I wanted to share some of what we wrote to subscribers after the company's last earnings when the stock was just above 200 and we warned about a big drop.
Here's some of what we wrote in October 2022. I said more then and regularly but this it's relevant as their next quarterly report approaches.
"Since TSLA is not clearly about to roll-out true-FSD, and has pushed out the timing several times I think there's more important risk catalysts to focus on, in the nearer term.
Very short term I think the company has a delivery bottleneck that can take multiple quarters to resolve. They talked about smoothing out their delivery curve a couple of years back and apparently were unsuccessful. Why? Because they still face the same situation, in fact worse. So this is apparently not an easy fix. I think this current bottleneck forces them to take the delivery adjustment more seriously this time and so we'll likely see revenue pushouts for the next several quarters until this is resolved. Since the company only came inlinish this [third] quarter and the stock didn't love it, there's more of this type of thing on tap for the next several quarters [we see from Q4 delivery numbers].
Very short term, consumers could wait for Q1 tax credits to make purchases. That, along with the delivery adjustment, could also push out sales into Q1 from Q4.
Economy: Elon Musk on the Q3 call did hint some concern for a 2023 recession. "And we try to model out like, let’s say, 2023 is a brutal recession year." He also complained that the Fed is tightening too much. Combining the two thoughts tells me that if the Fed does not ease up there is risk for a brutal recession in 2023 in Musk's view. I've been doing this a while and when a CEO mentions risk for a 'brutal recession' I think it's worthy to take note.
As you know I do think TSLA is doing amazing things and has huge potential. But my EPS numbers keep coming down. I don't love that. The valuation has come down along with those earnings numbers. Yes the Street numbers may have moved up but my numbers and am guessing Buy Side expectations that move the markets, probably have also been coming down.
So on year-out expectations the stock is not really cheaper because my EPS estimates have come down in lockstep. Meaning the down move is valid.
While TSLA has out-year valuation catalysts, as you know I strongly believe that companies are valued in the market generally on year-out EPS X PE. That year-out EPS number has more risk potentially.
I'll continue to watch, but I see more risks than reward fundamentally here right now."
As I said above this was all said in October ahead of a big drop for TSLA stock. I think this is all relevant today especially ahead of earnings which is kind of why I'm recycling this.
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