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Tesla Pre EPS Turmoil: 3 Long-Term Factors to Consider
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Beyond Bitcoin, finding a more controversial, “battleground” investment than Tesla ((TSLA - Free Report) ) is difficult.Depending on whom you ask and their investment timeframe, the stock is either a massive winner or a considerable underperformer. It’s possible both can be true – TSLA shares mindboggling 11,000% since going public back in 2010, dramatically outperforming the big automakers such as Toyota (TM),General Motors ((GM - Free Report) ), and Ford ((F - Free Report) ), as well as EV competition like LI Auto ((LI - Free Report) ) and Rivian ((RIVN - Free Report) ). That said, the stock has dramatically underperformed as of late, losing nearly half its value year-to-date. Is Tesla a buy here, or is it a classic value trap?
Below are 3 reasons Tesla may be close to a long-term bottom, including:
The Worst May be (close to) Priced In
Last weekend, Tesla slashed $2,000 off the price of its popular Model Y, Model S, and Model X vehicles in the United States. Meanwhile, the company has continuously dropped prices in China as competition heats up from formidable competitors like LI Auto and Nio ((NIO - Free Report) ). The price cuts, due to rising interest rates and the aforementioned Chinese competition, have put a heavy weight on costs for the company. Gross profit margins have plunged since their highs in 2022 and are back to near-pandemic levels.
Image Source: Zacks Investment Research
While the current price situation looks bleak for Tesla, it’s important for investors to understand that markets discount the future. From a forward-looking perspective, two factors potentially benefit TSLA. First, though the path to interest rates have been pushed back due to stubborn inflation, “hawkish” fears may be overblown. For example, BlackRock ((BLK - Free Report) ), the largest asset manager in the world, still sees potential for two Fed Rate Cuts in 2024. Second, though Chinese EV competition is heating up, a more robust economy could lift all ships, including Tesla. The IShares China Large Cap ETF ((FXI - Free Report) ) is up 7% over the past three months, outperforming the S&P 500 Index.
Rock Bottom Valuation
Tesla’s EPS growth slowed to just 8% year-over-year last quarter as high interest rates, slowing demand, and rising costs adversely impacted the company. However, an essential piece of the investment puzzle for Tesla is to understand that the company is in a transitional period. Cybertruck production is ramping up while the company focuses on its Robotaxi potential. If you believe, like me, that Tesla will ultimately be successful in these areas and growth will reaccelerate, then TSLA is as big a bargain as it’s ever been. TSLA’s price-to-book ratio is hovering near all-time lows. The last time the p/b ratio was this low, the stock went from a split-adjusted $11.80 to $414.50.
Image Source: Zacks Investment Research
Sentiment is Very Negative
Investor sentiment towards TSLA is extremely negative, and it shows up in the stock chart. Tesla’s Relative Strength Index (RSI), a measure of momentum, has only been more oversold twice in its history – in 2019 and late 2022. Each instance led to massive gains over the next few months.
Image Source: Zacks Investment Research
Bottom Line
Tesla’s stock is stuck in a debilitating downtrend, and there is significant risk into earnings tonight. However, for long-term investors with a risk appetite, TSLA appears to be attractive for a long-term investment once the short-term volatility and smoke settle.
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Tesla Pre EPS Turmoil: 3 Long-Term Factors to Consider
Beyond Bitcoin, finding a more controversial, “battleground” investment than Tesla ((TSLA - Free Report) ) is difficult.Depending on whom you ask and their investment timeframe, the stock is either a massive winner or a considerable underperformer. It’s possible both can be true – TSLA shares mindboggling 11,000% since going public back in 2010, dramatically outperforming the big automakers such as Toyota (TM), General Motors ((GM - Free Report) ), and Ford ((F - Free Report) ), as well as EV competition like LI Auto ((LI - Free Report) ) and Rivian ((RIVN - Free Report) ). That said, the stock has dramatically underperformed as of late, losing nearly half its value year-to-date. Is Tesla a buy here, or is it a classic value trap?
Below are 3 reasons Tesla may be close to a long-term bottom, including:
The Worst May be (close to) Priced In
Last weekend, Tesla slashed $2,000 off the price of its popular Model Y, Model S, and Model X vehicles in the United States. Meanwhile, the company has continuously dropped prices in China as competition heats up from formidable competitors like LI Auto and Nio ((NIO - Free Report) ). The price cuts, due to rising interest rates and the aforementioned Chinese competition, have put a heavy weight on costs for the company. Gross profit margins have plunged since their highs in 2022 and are back to near-pandemic levels.
Image Source: Zacks Investment Research
While the current price situation looks bleak for Tesla, it’s important for investors to understand that markets discount the future. From a forward-looking perspective, two factors potentially benefit TSLA. First, though the path to interest rates have been pushed back due to stubborn inflation, “hawkish” fears may be overblown. For example, BlackRock ((BLK - Free Report) ), the largest asset manager in the world, still sees potential for two Fed Rate Cuts in 2024. Second, though Chinese EV competition is heating up, a more robust economy could lift all ships, including Tesla. The IShares China Large Cap ETF ((FXI - Free Report) ) is up 7% over the past three months, outperforming the S&P 500 Index.
Rock Bottom Valuation
Tesla’s EPS growth slowed to just 8% year-over-year last quarter as high interest rates, slowing demand, and rising costs adversely impacted the company. However, an essential piece of the investment puzzle for Tesla is to understand that the company is in a transitional period. Cybertruck production is ramping up while the company focuses on its Robotaxi potential. If you believe, like me, that Tesla will ultimately be successful in these areas and growth will reaccelerate, then TSLA is as big a bargain as it’s ever been. TSLA’s price-to-book ratio is hovering near all-time lows. The last time the p/b ratio was this low, the stock went from a split-adjusted $11.80 to $414.50.
Image Source: Zacks Investment Research
Sentiment is Very Negative
Investor sentiment towards TSLA is extremely negative, and it shows up in the stock chart. Tesla’s Relative Strength Index (RSI), a measure of momentum, has only been more oversold twice in its history – in 2019 and late 2022. Each instance led to massive gains over the next few months.
Image Source: Zacks Investment Research
Bottom Line
Tesla’s stock is stuck in a debilitating downtrend, and there is significant risk into earnings tonight. However, for long-term investors with a risk appetite, TSLA appears to be attractive for a long-term investment once the short-term volatility and smoke settle.