Tesla [NASDAQ:TSLA] is always a trader favourite, and this quarterly earnings report should garner strong interest. Few stocks create such fierce debate as to the near- and longer-term prospects, and when you get such dispersion in the expected outcomes you get movement, and this creates opportunity.
Movement is always a drawer card for short-term traders, and Tesla is the poster child of movement and volatility, especially around key announcements, such as quarterly delivery or earnings reports.
Core trading considerations
Consider that short interest is 6% of the free float and granted that has come down significantly from the levels we saw in May 2019, it is still elevated – an important factor for one’s risk management consideration, notably if the guidance and commentary inspires.
If we look at Tesla’s pedigree over prior quarterly earnings (as a guide), we’ve seen the share price fall in five of the past eight quarterly earnings, with the average move lower being 5.7%. In the three times it rallied the average rally was 9.6% – somewhat skewed by the 17.7% gain seen in Q3 2019. So, one thing is true, historically we’ve seen sizeable moves in price to earnings news – this time may be no different, in fact, if the implied move on the day of earnings (derived from options pricing) is 8.7%, so traders are eagerly anticipating movement.
Importantly Tesla is scheduled to report shortly after the cash market close on 26 April, where it’s earnings should dominate the news flow in after-hours trade.
Technical focus (daily chart)
The primary bull trend that commenced last March remains intact and we would need to see a move through $620 in Tesla stock for this to break. Tesla share price is above both the 20- and 50-day MA, but its unconvincing and the bulls want to see a break above $780 to see the bull trend resume. At this juncture given the many considerations that could drive the share price and the potential for outsize moves it easy to see choppy price action in earnings, with traders reluctant to take on too much exposure before the 26th.
What to watch in the earnings release?
Only recently, Tesla released its Q1 vehicle delivery numbers, which were just shy of 185,000 and some 7% above consensus expectations. The street are looking for signs of a more rampant second half, with consensus expectations calling for 831,000 delivered vehicles for the full-year – the share price likely reacts to any guidance above/below here, with expectations they will confirm a 50% increase in deliveries (year-over-year).
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In terms of Q1 earnings, I am not sure the reported quarter’s numbers matter too intently as it’s about the concept of the future. That said, if we do see a material beat/miss to expectations then it may promote a quick-fire reaction. Here’s what’s expected:
- Q1 EPS of 77c
- Q1 Revenue of $10.33b
- Will they be on track to meet Q2 expectations of $11.62b?
- Gross margins 21%
- Return on equity of 43%
With a market cap of $685b one suspects strong expected future delivery growth is baked in, with the market clearly seeing them as a global leader in the auto market by 2030. Recent stats show Tesla’s market share in EV sales has dropped from 25% to 24%, with VW picking up the pace quite rapidly, while GM are also a key threat. The board will want to arrest that, especially in the US EV market, where its market share has dropped to 61% from 84% vs the PCP.
Many feel that for the valuation to truly justify current levels, the market needs to see genuine clarity the company is moving closer to a world where autopilot/self-driving will be the norm, and the change led and dominated by Tesla. On recent news flow that is some way off – expect any statement around this to garner trader interest.
Traders will also be keenly interested in developments around the full internalization of its battery development so that it becomes ever more self-reliant. As will be the case with news on the opening of new factories in Austin, China, and Germany which will help with the potential demand. The unveiling of any new models could also be a catalyst for the share price.
For those interested in looking at the opportunity in Tesla, it’s time to put Tesla on the watchlist as the prospect of movement and range expansion is clear.
This article is brought to you in association with Pepperstone. All opinions expressed in this article are from the author and do not necessarily represent the opinions of The Armchair Trader.