Submitted by Joel Laceda as part of our contributors program.
Should You Be Buying Tesla Right Now?
What is a company worth?
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That’s the question you should ask when you’re considering buying a stock for the long-term. Too many people get caught up in the emotions of the market. This is why most people underperform or even lose money outright: they buy when a stock is high and sell when a stock is selling off.
For the short-term trader, there are times when this makes sense. But if you’re looking for a real investment, you need to think more like a chess player, looking out 5-10 moves in advance.
Tesla Motors Inc. (NASDAQ: TSLA) has seen its stock sell-off quite a bit and I think there is value for the long-term investor.
First, take a look at the value of the company, worth approximately $16 billion. We’ve heard reports that SnapChat is being valued at $4 billion even though they have NO revenue and no possible way to make earnings.
Yet, Tesla is being talked about as if it were in a ‘bubble’, even though they’re growing revenue at a massive rate.
For the first 9 months of 2013, the company reported $1.4 billion in revenue, up 1300% from the $106 million during the first 9 months of 2012. Gross profit was $299 million during the first 9 months of 2013, up massively from just $6 million during the same time span in 2012. (Source: “Third Quarter 2013 Shareholder Letter”, Tesla Motors Inc., November 5, 2013)
People want to think of Tesla like other car companies, but that’s not a fair comparison. What other car company is growing revenue at such a massive rate? Not one.
Tesla is really a technology stock.
Demand continues to grow and Tesla is doing its best to meet rising global demand.
Currently the company is making 550 cars per week, with over 19,000 Model S cars sold and on the road so far.
The firm is planning to continue increasing production, as well as having suppliers boost their output. One of the biggest hurdles is waiting for the batteries to be made and delivered. The company recently entered a deal with Panasonic to add 3 times the number of lithium-ion battery cells over the next four years.
The company has been able to increase gross margins on a non-GAAP basis to 21% during the latest quarter, up from 14% during the second quarter. Frankly, I don’t even worry about gross margins at this point. I want to see additional capacity put online and thousands of more vehicles sold to meet rising demand.
Don’t forget, this is all with one vehicle, the Model S. The next vehicle to hit the showroom is the Model X, a sport-utility vehicle set to be delivered in 2014. Tesla also is looking at adding a mid-priced vehicle in the range of $35,000 plus a pick-up truck.
Tesla is also looking at working with other companies in selling their technologically advanced battery storage solutions.
When you look at all of these drivers, a company growing at this speed and only worth $16 billion makes the current market cap appear quite cheap.
This sell-off started to scare people, the short-term momentum guys. But we’ve seen long-term investors begin to accumulate when the stock was really attractive at the $120 area, and continue buying as the stock is beginning its rebound.
The question remains, “Should you be buying Tesla right now?’. For more information, click here to find out in Profit Behind The Blog @ BehindWallStreet.com.