In this video, we review Tesla's (Nasdaq: TSLA) blow-out delivery number and what it means for future quarters. We also go through why the market (NYSEARCA: SPY) looks short-term peaky.
Video Length: 00:17:49
Tesla: Wow
Tesla had everything working against them. Fremont was down. The supply chain was disrupted. Global demand was in a depression. And they pulled it out?! Could you imagine if the world was in normal-mode right now? How good could it really have been?
About a week ago Electrek reported that Tesla was close to break even profit for the quarter. If so the only way we can get there is by having gross margins holding up strong in a very tough quarter.
We were bullish even if Q2 was an EPS loss. But profit means something special so we went from Buy to Strong Buy and even made Tesla a max 10% position in our model portfolio for a period (Model portfolio: Paywall). Our subscribers were pumped of course with the big move.
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Source: Elazar Advisors model with data pulled from company releases
To get to breakeven for the quarter (paywall: Full model) we would need gross margins for auto in the high twenties percent range. That's of course huge.
Gross margins are heavily influenced by production efficiency and pricing. To have gross margins hold up in tough times gives you some visibility that if and when things normalize they should jump higher.
If so, that would get our EPS numbers even higher than where they are right now.
That gives us conviction that our $1,500 12-month target could be low. We base that on our 2021 EPS X a 45 PE.
In fact we're the only sell-sider with stock price upside. What's up with that?
(Click on image to enlarge)
Data From Factset
Above you see the right column of all the sell-siders that follow Tesla. We're the only ones with stock price upside potential. People are sleeping.
Earnings are jumping. This "weak" Q2 gives you visibility numbers can continue to jump if we ever get normal back in the world. But the brokerage firms can't see it. They are stuck.
But, whenever Tesla gets S&P 500 inclusion for having multiple profitable quarters which could be soon, all these brokers are going to have to pile on higher to recommend it.
Stock Market Peaky?
Chart From Think Or Swim
Look at the last few weeks.
You just had two months of historic high non-farm payroll numbers and the market can't see new highs. The market's lower than last month's NFP number.
Even with the huge Fed support, the market seems stuck.
The combination of a slowdown in weekly jobless claims improvement with spiky coronavirus numbers could be holding markets back.
Conclusion
We have no problem switching, but for now, the market is showing us even with all the "great" relative news it's having a tough time moving higher. Coronavirus cases hitting new highs may be holding investors back.
In this video, we run through some key measures to watch to help decide the market's next move.
We also talk about Tesla's amazing week last week. We were the only bulls? That tells us there's much more to go as many other brokers have to switch from bears to bulls.
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