Arie Goren

About the Author Arie Goren

Arie Goren is a senior global analyst at Sigma Wealth Management/ ANDBANK GROUP. He has 37 years of experience in the world financial markets specialized mostly in the American stock markets and commodities. Arie Goren has been writing many investment articles in important financial websites and financial newspapers like Seeking Alpha, Amigobulls, TalkMarkets, Born2Invest, Bizportal, Themarker, Calcalist, Globes and others. He has also developed very successful strategies for creating winning portfolios according to specific formulas. In January 2015, he was ranked among the world’s top 10 financial bloggers according to TipRanks, which holds financial experts accountable for their recommendations by disclosing their stock ratings since 2009.

Tesla Inc (TSLA): Now It’s the Right Time to Take Profits

As first quarter 2017 report release is approaching; all eyes are on Tesla Inc (NASDAQ:TSLA). The company is scheduled to deliver its first quarter results on Wednesday, May 3, after market close.

While investors in TSLA’s shares are celebrating its new all-time high of $314.07 on April 28, short sellers are continuing to worry. Tesla’s stock has very high short interest, in fact, its short interest as a percent of the float of 26.49% is the highest among all 179 companies trading in U.S. markets with a market cap greater than $50 billion. Alibaba Group which comes second has short interest as a percent of the float of 13.54%. TSLA’s stock has outperformed the market by a significant margin in the last few months. In fact, TSLA’s stock has been the best performer among all 179 companies with a market cap greater than $50 billion in the last 26 weeks gaining 53.95%. NVIDIA Corporation has been the second best performer during this period with an appreciation of 47.57%. Since the start of the year, TSLA’s stock is already up 47.0% while the NASDAQ Composite Index has gained 12.3% and the S&P 500 index has increased 6.5%.

TSLA’s  Weekly Chart

Chart: TradeStation Group, Inc.

After such a strong rally and the possibility of a disappointing first quarter report, investors might consider taking the profits and selling TSLA’s stock. There is quite a big difference of opinion among analysts predicting first quarter results. While the average earnings per share estimate of 17 analysts is for a loss of $0.81 and the lowest estimate is for loss of $1.79, the highest estimate is for a profit of $0.23 per share. Also, there is a significant difference in revenue predictions while the average of 17 analysts is for sales of $2.6 billion, the lowest estimate is for sales of $2.28 billion in the quarter, and the highest estimate is for revenue of $3.25 billion.

To get an idea how estimates had succeeded in the last few quarters, the tables below show the estimate and the actual earnings per share and sales for the previous five quarters.

Source: Portfolio123

Let’s see what had happened to TSLA’s shares after previous quarterly earnings reports. On February 22, 2017, the company released its fourth quarter and full year financial results. As shown in the tables above, there was negative earnings per share surprise and positive sales surprise. However, shares of Tesla had dropped 6.4% on the next trading day (Tesla is reporting after market close) and remained down 8.6% from their price before the earnings release after one week and down 6.8% after one month.

On October 26, 2016, Tesla released its third quarter 2016 financial results. Since there was positive earnings per share and sales surprise, TSLA’s shares increased 0.9% % on the next trading day. However, shares were down 7.3% after one week and were still down 3.0% one month after the third quarter 2016 report.

On August 3, 2016, Tesla released its second quarter 2016 financial results, which were below expectations in earnings and revenue as well. However, shares rose 2.1% on the next trading day. Nevertheless, TSLA’s shares were down 10.2% one month after the second quarter 2016 report.

Although past results can give us an idea about TSLA’s stock behavior after earnings releases, it is, by no means, a guarantee for future conduct, and TSLA’s stock could soar if the company would reveal a significant improvement in its guidance for the current year. Also, top analysts according to TipRanks are quite divided about Tesla’s prospects. While the average target price of top analysts is at $291.50 a downside of 7.2% from the stock April 28 price of $314.07, there are suggested target prices by these analysts between $160 to $375, which is an unusually large difference.

All in all, as I see it, now it is the right time to take some profits by selling TSLA’s stock since there is a higher chance for a retreat in the stock price than a further increase in the price. I repeat here my conclusion in my previous article about Tesla:

“Since Tesla is a great company with a bright future on the long run, I believe that a significant correction in its stock price might be the best moment to start a long-term investment in the stock. In any case, for peace of mind, I am not recommending shorting the stock.”


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