Reports Q4 2020 results on Wednesday January 27, after market close
Expected Revenue: $ 10.37 billion
EPS expectation: $ 1.01
Tesla (NASDAQ 🙂 has been a great growth story for investors who have remained true to it despite the electric vehicle manufacturer's turbulent past. If you had held the stock for the past year, your investment would have multiplied roughly eightfold.
Following this parabolic move, it has now become quite difficult for analysts to justify the current level of the stock with the company's earnings growth. When Tesla releases its latest earnings report on Wednesday, founder and CEO Elon Musk will likely have questions about whether he can support the stock's movement with the company's future growth potential.
Tesla shares, however, show no signs of losing momentum in 2021. They are already up 21% so far, compared to a gain of 1.6% over the same period. This divergence clearly shows that expectations are high when discussing next week's earnings reporting.
There is no doubt that Tesla's growth prospects have improved dramatically over the past year. The California-based automaker is no longer facing the manufacturing troubles that bogged it down for much of 2019. Earlier this month, he told investors he had nearly reached his target of delivering 500,000 vehicles by 2020. The company handed over 180,570 vehicles in the last three months of the year, most for each quarter, but 450 vehicles eschewed the half-million mark Musk set for the year. That was a growth of 36% compared to the previous year.
With production increasing and stocks soaring, the company is no longer in a precarious cash position. It raised about $ 12 billion in stock sales in 2020, benefiting from its extremely wealthy valuation and without over-diluting existing investors. On a macro level, Joe Biden's election should mean that US policy becomes more favorable towards electric vehicles.
Tesla Stock Bubble?
That said, none of this justifies a valuation of Tesla at 27 times its expected 2020 revenues. In context, one of Tesla & # 39; s biggest competitors, Volkswagen (DE :), trades at 0.3 times turnover. Perhaps this discrepancy is why many analysts fear that Tesla shares reflect market conditions in which retail investors, laden with stimulus controls, feed a bubble that could burst at any time.
Even after several prominent analysts recently gave up their bearish calls to Tesla, the average target price of the companies covering the company is still nearly 50% below current levels. Only a third of those backing the stock recommend buying it, a percentage that hasn't varied much over the years, according to Bloomberg data. For these reasons, it is very important for Musk to keep Tesla profitable to show that he can consistently sell cars for more than they cost.
On average, analysts expect the company to show its first-time sales increase of 29% to more than $ 10 billion. But earnings per share could drop to $ 1.01 from $ 2.14 in the same period a year ago. Still, it would represent a sixth consecutive win.
To keep the momentum going, Musk must also show that his future expansion plans are moving forward. Tesla is building two new vehicle assembly plants: one outside of Berlin that could eventually assemble up to 500,000 cars per year, and another in Texas, where the brand will be picked up for the first time. Both are expected to begin production later this year and join the existing vehicle assembly plant in Fremont, California and Shanghai.
Bottom Line
Following Tesla's unprecedented 2020, investors are showing great confidence in the company's ability to consistently exceed expectations. If that happens, it will certainly warrant a strong bull case for Tesla, but that's built into the stock price. On the other hand, any negative surprise could help prove that Tesla is trading well beyond its true potential.
