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  • 8/12/2019 Tesla Motors, Inc - Pegah Ardalan

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    Running head, TESLAS STOCK ANALYSIS 1

    Tesla Motors, Inc. Stock Analysis

    Pegah Ardalan

    Keller Graduate School of Management

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    Abstract

    Tesla Motors, Inc. was founded in 2003 by South African entrepreneur Elon Musk, and is based

    in Palo Alto, Ca. Tesla Motors, Inc. was founded in 2003 by South African entrepreneur Elon

    Musk, and is based in Palo Alto, California. The company designs, manufactures, and sells

    electric cars, and is known for introducing the first fully electric sports car, the Tesla Roadster, in

    2008. Tesla stopped producing the Roadster in 2011 as its contract with the key supplier expired,

    and launched the Model S in June 2012. There are currently 85 Supercharging stations across the

    nation and 14 Superchargers in Europe. The Model X production will start as a trickle in late

    2014, with volume production happening in early 2015. The company will post its financial

    results for the first quarter ended March 31, 2014, after market close on Wednesday, May 7,

    2014. My recommendation is that teslas stock is a buy at under $200 per share. After building a

    base of support since last autumn, the stock broke above resistance, which was around the $200

    per share.

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    Tesla Motors, Inc. Stock Analysis

    Company Background and Life Cycle Analysis

    Tesla Motors, Inc. is a Silicon Valley based company that designs, manufactures

    and sells electric cars and electric vehicle powertrain components. Entrepreneur/Inventor

    Elon Musk and four other associates founded Tesla in 2003. The company held its initial

    public offering on January 29th of 2010. The firm became cash flow positive for the first

    time in history in Q4 of FY2012. Tesla Motors, Inc. designs, develops, manufactures, and

    sells electric vehicles and electric vehicle powertrain components. The company also

    provides services for the development of electric powertrain systems and components,

    and sells electric vehicle powertrain components to other automotive manufacturers. It

    markets and sells its vehicles through Tesla stores and galleries, as well as over the

    Internet. The company operates a network of 80 stores and galleries in North America,

    Europe, and Asia. Tesla Motors, Inc. was founded in 2003 and is headquartered in Palo

    Alto, California.

    The business is broken into two separate segments; automotive sales and

    development services. Automotive sales are the main revenue driver making up nearly

    90% of the firms revenue. Automotive Sales is broken into two subsections, Vehicle,

    Options and Related Sales and Powertrain Component and Related Sales.

    An Analysis of Return on Equity

    The company's current return on equity greatly increased when compared to its

    ROE from the same quarter one-year prior. This is a signal of significant strength within

    the corporation. Compared to other companies in the Automobiles industry and the

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    overall market, TESLA MOTORS INC's return on equity significantly trails that of both

    the industry average and the S&P 500.

    Teslas Financial Highlights

    TESLA MOTORS INC's gross profit margin for the fourth quarter of its fiscal

    year 2013 has significantly increased when compared to the same period a year ago. The

    company grew its sales and net income significantly quarter versus same quarter a year

    prior, and was able to outpace the average competitor in the industry when comparing

    revenue growth, but not when comparing net income growth. TESLA MOTORS INC has

    average liquidity. Currently, the Quick Ratio is 1.33, which shows that technically this

    company has the ability to cover short-term cash needs. The company's liquidity has

    increased from the same period last year, indicating improving cash flow. At the same

    time, stockholders' equity ("net worth") has greatly increased by 434.97% from the same

    quarter last year. Together, the key liquidity measurements indicate that it is relatively

    unlikely that the company will face financial difficulties in the near future.

    First-quarter estimate

    First, start with the non-GAAP revenue figure. Tesla guided for deliveries of

    6,400 vehicles. Most delivered vehicles have been sold with a high number of extra

    options, and fetched close to an average price of $110,000 per vehicle. While Tesla didn't

    come right out and say that the large number of customers opting for options has

    continued in the fourth quarter, CEO Elon Musk implied it in the conference call.

    Musk stated that the fourth-quarter margin guidance for 2014 "assum[es] that the take

    rate of options decreases slightly." He also said, "As we reach the broader markets, the

    option uptake, for example, people ordering, say, performance plus, we expect, will

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    decrease." Tesla hasn't reached the broader or "mainstream market" yet. Musk only

    mentions the merepossibility of declines in the future. Finally he even leaves the

    possibility open that the option take won't decrease, but for that to be possible would

    mean that current deliveries and orders haven't seen any reduction yet.

    Knowing this, $110,000 is a reasonable figure to use for the average price of each

    delivery for a total non-GAAP revenue expectation of $704 million.

    Next we have gross profit margins. Tesla said to expect Q1 to be "slightly" higher

    than Q4's 25%. What does slightly mean? To be cautious, we can use a flat 25%. This

    puts the gross profit margin at $176 million.

    Total operating expenses last quarter were approximately $145 million. Tesla said

    that these are expected to grow by 15%, to around $167 million. This puts the operating

    profit at around $9 million. Using 123 million diluted shares, this brings the non-GAAP

    earnings per share down to $0.07.

    Adding some unknowns like interest expense, and expenses related to battles with

    New Jersey and other states, and EPS should come in at something less than $0.07. Last

    time I check (4/12) analysts on Yahoo are calling for $0.12. Unless Tesla reports higher

    revenue or gross profit margins or lower operating costs than guided, Tesla could miss

    estimates by a good amount if analysts don't lower their figures.

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    TSLA's very impressive revenue growth greatly exceeded the industry average of

    5.3%. Since the same quarter one-year prior, revenues leaped by 100.8%. Growth in the

    company's revenue appears to have helped boost the earnings per share.

    The debt-to-equity ratio is somewhat low, currently at 0.91, and is less than that

    of the industry average, implying that there has been a relatively successful effort in the

    management of debt levels. Along with the favorable debt-to-equity ratio, the company

    maintains an adequate quick ratio of 1.33, which illustrates the ability to avoid short-term

    cash problems.

    The gross profit margin for TESLA MOTORS INC is currently lower than what

    is desirable, coming in at 31.56%. Despite the low profit margin, it has increased

    significantly from the same period last year. Despite the mixed results of the gross profit

    margin, TSLA's net profit margin of -2.64% significantly underperformed when

    compared to the industry average.

    Conclusion

    The company's strengths can be seen in multiple areas, such as its robust revenue

    growth, largely solid financial position with reasonable debt levels by most measures and

    solid stock price performance. However, as a counter to these strengths, I find that the

    company's profit margins have been poor. Given all the information and the upcoming

    First-Quarter earnings that could come below analysts estimates, at below $200/per share,

    Tesla is a good buy or a hold.

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    Reference

    1- Yahoo Finance. Retrieved April 20, 2014, from

    http://finance.yahoo.com/q/pr?s=TSLA+Profile

    2- Reuters. Retrieved April 21, 2014, from

    http://www.reuters.com/finance/stocks/companyProfile?symbol=TSLA.O

    3Tesla - The Street Rating

    http://finance.yahoo.com/q/pr?s=TSLA+Profilehttp://finance.yahoo.com/q/pr?s=TSLA+Profilehttp://www.reuters.com/finance/stocks/companyProfile?symbol=TSLA.Ohttp://www.reuters.com/finance/stocks/companyProfile?symbol=TSLA.Ohttp://www.reuters.com/finance/stocks/companyProfile?symbol=TSLA.Ohttp://finance.yahoo.com/q/pr?s=TSLA+Profile