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Are Tesla shares ahead of earnings?



On Wednesday, Tesla (NASDAQ: TSLA) will report on the results of the third quarter. Following the announcement of record deliveries in the third quarter, expectations regarding the financial performance of the electric vehicle manufacturer during this period are high. Even more, the rapid stock price over the past year has raised the rate for Tesla to continue to grow its business rapidly.

Will the automaker be able to justify the excitement?

Ahead of Wednesday’s earnings report, some investors may be wondering if they should buy up stocks before the upgrade. After all, if Tesla announces earnings and earnings per share that were expected to be better than expected, stocks could jump.

To better understand whether the shares of an electric car company are attractive today, here is a brief overview of profits and an analysis of the current valuation of the shares.

Interior of Tesla Model X

Model X. Image source: Motley fool.

Strong impulse

Earlier this month, Tesla said it had delivered a record 139,300 vehicles in the third quarter. This was a huge jump compared to the second quarter – when the main carmaker’s factory was temporarily forced to stop working due to the coronavirus. Car deliveries grew by 53% consecutively in the third quarter. However, the growth was also impressive compared to the quarter of last year – the period of Tesla’s work were at full power. Deliveries increased by 43% for the year.

In 2020, Tesla’s business will benefit from the release of a new Model Y SUV earlier this year. As the company’s management is the most affordable car to date, management expects that sales of the Model Y will eventually catch up with sales – the Model 3 – Tesla’s best-selling car.

Tesla Y model

Model Y. Image source: Tesla.

Analysts expect that Tesla’s strong sales growth will also lead to impressive growth of the upper and lower levels. On average, analysts expect revenue to grow 31% year-over-year to $ 8.26 billion, and earnings per share (including GAAP) will increase 51% to $ 0.56.

Tesla Shares: Buy, Sell or Hold?

If Tesla’s business is firing on all cylinders, are Tesla shares buying ahead of earnings?

The carmaker’s earnings report can, in fact, send shares soon after the report. But stocks can just as easily disappear if Tesla misses a mark in an area. It is very difficult to simply predict in which direction the action will move after the report.

Even more, investing in stocks should in any case be based on investors’ perceptions of the company’s long-term potential – rather than on a quarterly basis.

Reducing the current quarter, investors should note that the valuation of Tesla shares is already growing significantly over the next decade. The company’s market capitalization exceeds $ 400 billion, despite the fact that revenue for 12 months reached only $ 26 billion. Free cash flow, or excess cash flow left over from regular operations and capital expenditures, was only $ 800 million.

It is possible that the market has already set prices for both the constant leadership in electric vehicles and a significant increase in market share in the overall global car market. Since so much optimism is already valued in stocks, I would prefer a better entry point than $ 445 per share. Maybe if investors are lucky and the stock falls below $ 400 after the earnings report, the stock may start to look attractive.

For now, however, I would rate Tesla shares as a “delay” that is included in Wednesday’s earnings report. Of course, there is no guarantee that Tesla shares will ever retreat to this level again. But I do not mind waiting on the sidelines, hoping for a more reasonable assessment.

Tesla’s third-quarter earnings will be released after the market closes on October 21.




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