This 'Loser' Stock is on the Verge of a Major Technical Reversal
If you followed the recent presidential debates, you may have heard presidential candidate, Mitt Romney, attack the luxury electric car maker, Tesla Motors (NASDAQ: TSLA), calling the company a "loser."
On the heels of President Obama's re-election, the comment seems ironic. Not only did Tesla recently report upbeat third-quarter results, but its flagship Model S luxury sports sedan just won a prestigious industry award. It was named "Automobile of the Year" by Automobile Magazine.
With President Obama's clean energy policy plans, the electric vehicle company should continue to shine. Obama wants to see at least 1 million hybrid and electric vehicles on the road by 2015. And Tesla is working hard to help make this goal a reality.
The car company is currently producing more than 200 cars a week, or more than 10,000 cars a year. According to management, this production level is the critical threshold needed to generate positive operating cash flow. Resolving important production issues, the company now plans to further ramp up production to 400 cars per week by December 2013.
In addition, Tesla plans to install "fast-charging stations" on all major routes throughout the United States by the end of 2013. These solar-powered stations will recharge Tesla vehicles, enabling them to run for about 250 miles per charge. According to Tesla's CEO Elon Musk, these charging stations will be a major breakthrough in electric vehicle technology, and it will take about as long to recharge the car as it would to stop for gasoline and a bathroom break in gas-powered vehicle.
With all these positives, the so-called "loser" looks quite appealing.
Although shares have been on a major downtrend since March 2012 -- falling about 33% from their late March high of $39.95 to a mid-October low of $26.86 -- the stock appears to be on the verge of a major technical reversal.
Upon hitting support at the $26.86 level, shares have been moving up. At $31.38 at the time of this writing, the stock appears ready to test the major downtrend line. If Tesla can bullishly break resistance, marked by the downtrend line, the stock could pop, and shares would likely surge up to the next significant resistance level. No significant resistance occurs until around $36.42, a high in late 2010.
The bullish technical outlook is supported by an upbeat fundamental outlook. Due to increased deliveries of the company's flagship Model S sedan, management projects full-year 2012 revenue will be in the range of $400 million to $440 million, a gain of at least 95% from last year.
With increasing demand for energy-efficient vehicles, analysts' project first-quarter 2013 revenue will jump a whopping 1,100% to $30 million, from $362 million in the comparable year-ago period.
Although the earnings outlook is not as optimistic, analysts do expect a positive outcome in the coming quarters.
For full-year 2012, analysts' project earnings will fall to -$3.07 per share, from -$2.21 per share last year. However, as the company carries out its plans to increase manufacturing efficiencies and cut costs, analysts expect the earnings story to dramatically turn around. Earnings are expected to go from -$0.76 per share in the first quarter of 2012 to -$0.16 per share in the first quarter of 2013. And full-year 2013 earnings are estimated to come in at +$0.16.
Risks to consider: While electric vehicles are making in-roads with energy-conscious consumers, Tesla is not yet a well-known car company. In order to win over more drivers, Tesla will need to establish greater brand awareness, beating out better-known competitors like Ford (NYSE: F) and Toyota (NYSE: TM) -- both of which offer hybrid vehicles. Tesla is a relatively new company (founded in 2003), and as its cars continue to earn prestigious accolades, greater consumer brand awareness should follow, boosting future sales.
Recommended Trade Setup:
-- Buy TSLA at $31.38 or below
-- Set stop-loss at $26.82, slightly below current resistance
-- Set initial price target at $36.42 for a potential 16% gain by mid-2013