As I write this, shares of Tesla Inc. (TSLA) are climbing after hours, following its first-quarter earnings report. My long-time readers know that I previously considered TSLA one of the most overvalued and overhyped tech stocks money can buy. However, now that Tesla was able to top first-quarter estimates, is it time for me to revise my longstanding recommendation? Let’s find out.
Last quarter, the electric auto maker brought in $1.6 billion in sales, a 45% increase over Q1 2015. At the same time, Tesla posted a loss of $0.57 per share, compared with a loss of $0.36 a year ago. However, analysts were expecting a loss of $0.58 per share, so Tesla did marginally better than expected.
Looking ahead, Tesla also announced that it was expecting to deliver between 80,000 and 90,000 electric vehicles in 2016. By the end of 2018, Tesla is targeting 500,000 deliveries, which would put Tesla two years ahead of schedule.
These announcements could very well cause analysts to lift their FY 2016 projections. As it stands, the Street view calls for $1.28 EPS on $8.62 billion in revenue, or a 62.9% annual increase in sales and a 155.7% rise in earnings.
With results like these, buying TSLA would be a no-brainer, right? Well, unfortunately in this case Tesla has additional baggage that too burdensome to ignore. First, even with those lofty projections, TSLA trades at a staggering 64 times forecasted earnings. By comparison, the S&P 500 trades at under 17 times forecasted earnings.
Second, the company suffered a major setback just hours before its earnings report. Not one, but two of Tesla’s top executives are leaving the company right before the company’s big Model 3 launch. Specifically, Tesla’s vice president of production and its vice president of manufacturing are resigning. Their exits come at a crucial time, when Tesla is starting to ramp up production and launch its new entry-level sedan.
Third, it’s going to take more than one quarter’s worth of results to turn around the stock’s lackluster Portfolio Grader rating. If you plug TSLA into my stock screening tool, you’ll see that it earns a C-rating overall, with a D for fundamentals and a B for Quantitative Grade. Tesla outright fails on Earnings Momentum (F), Earnings Surprises (F), Analyst Earnings Revisions (F), Cash Flow (D) and Return on Equity (F).
So, keeping this in mind, I still do not recommend buying TSLA at this time. If you currently own shares, you may hold them, but the company still has to clear these roadblocks before earnings a buy recommendation from me.