Tesla (TSLA) has been one of the most popular stocks among Zacks.com visitors recently, so it may be a good idea to take a look at some factors that could impact the stock's near-term performance.
Over the past month, shares of the electric vehicle maker have returned -17.5% compared to a -4.5% change for the Zacks S&P 500 Composite Index. During that same period, the Zacks Automobiles – Domestic industry, which Tesla belongs to, has fallen 19.3%. The big question here is, what is the direction of this stock going forward?
Media announcements or rumors of significant changes in a company's business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we prioritize evaluating the changing earnings estimates for a company, rather than focusing on other things, because we believe the fair value of a stock is determined by the present value of its future earnings stream.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
Tesla is expected to post earnings of $0.59 per share for the current quarter, which would represent a -10.6% change from the year-ago period. Over the past 30 days, the Zacks Consensus Estimate has changed -2.8%.
The consensus earnings estimate for the current fiscal year is $2.30, indicating a change of -26.3% year over year. Over the past 30 days, this estimate has changed -3.3%.
Looking at the next fiscal year, the consensus earnings estimate of $3.14 represents a +36.3% change from what Tesla was expected to report a year ago. Over the past month, estimates have changed -6%.
The Zacks Rank, our proprietary stock rating tool that has an impressive outside-audited track record, effectively harnesses the power of earnings estimate revisions and is a more reliable indicator of near-term stock price movements. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings expectations, has earned Tesla a Zacks Rank of #3 (Hold).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
A company's earnings growth is arguably the best indicator of a company's financial health, but nothing happens if the company can't grow earnings. It's nearly impossible for a company to grow its earnings without growing its revenue over the long term. Therefore, knowing a company's earnings growth potential is very important.
For Tesla, the consensus revenue estimate for the current quarter is $25.66 billion, indicating a change of +9.9% year-over-year. For the current and next fiscal years, estimates of $98.53 billion and $113.1 billion indicate changes of +1.8% and +14.8%, respectively.
Last reported results and surprise history
Tesla reported revenue of $25.5 billion for the most recent quarter, up 2.3% from the same period a year ago. EPS was $0.52 for the same period, up from $0.91 a year ago.
Compared to the Zacks Consensus Estimate of $25.13 billion, reported revenues represented a surprise of +1.48%. EPS surprise was -16.13%.
The company has failed to beat consensus EPS estimates in any of the last four quarters, and has only beaten consensus revenue estimates once during that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock's current price properly reflects the intrinsic value of its business and the company's growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
On this scale, Tesla is rated an F, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Tesla is worth following, although the company's Zacks Rank #3 suggests it may be capable of performing in line with the broader market in the near term.
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Tesla Inc. (TSLA) : Free Stock Analysis Report
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