Is Tesla A Buy Complete With Its Stock Split As Production Improves?


There is never a dull moment when it comes to Tesla Chief Executive Elon Musk. One day, he launches space capsules to the International Space Station. On another, he opens a new car factory. And on another he is jousting with Twitter (TWTR) in its bid to acquire the social media company. With all that, is Tesla stock a buy?


Tesla recently completed a 3-for-1 stock split, with the shares split on August 24, approved at the company’s annual shareholder meeting.

The advantage of stock splits is that it makes investing easier for corporate employees and avid retail investors. They are generally seen as a bullish sign implying strong execution from a business perspective. It will be Tesla’s second split in just over two years.

Another key event at the company’s shareholders’ meeting came from comments from Musk. He praised Tesla’s profitability and said the company had achieved an industry-leading operating margin in the past year. That success, he said, stems from a “relentless pursuit of efficiency through factory design, automation and innovation.”

Production efficiency a strong advantage

Musk said Tesla’s strongest competitive advantage may be production efficiency.

Moreover, Tesla’s biggest opportunity may lie in AI-powered robotics, not auto-manufacturing or self-driving cars, Musk said. And Tesla will become even more efficient in the future.

The newly opened Gigafactory Berlin will reduce logistics costs by locating the company’s European operations, meaning fewer cars to be shipped to Europe from its plants in the US and China. Tesla also plans to implement a technology that will cut battery production costs in half.

Looking ahead, Musk says Tesla could reach a production run of two million vehicles by the end of this year, and he reiterated the target of 20 million vehicles by the end of the decade.

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Huge profit and revenue growth

Tesla may seem like a pricey stock in terms of valuation. But the company has already posted huge profits and revenue growth for several quarters in a row. Also, annual earnings estimates show that the company’s growth trajectory is still intact.

Tesla recently announced that it shipped 254,695 electric vehicles worldwide in the second quarter. That was down 18% from the previous quarter and missing FactSet estimates of 264,000. The delay was partly due to a prolonged shutdown of the coronavirus in China. Restrictions on opening production facilities in Austin and Berlin also had an impact.

Wedbush analyst Dan Ives raised his price target on Tesla on the day of the 3-for-1 split. He increased it to 360, from 333. Ives did this on the basis of the stock split and “improved Tesla’s production from its main China Giga plant in the September quarter with clear momentum moving towards the end of the year,” Ives wrote. in a note to customers.

“Demand isn’t the problem for Tesla, but supply is and is clearly now on the rise with China on the next level of Model Y production as Berlin and Austin ramp up their production lines through the end of the year.”

Second quarter results were mixed

On July 20, Tesla reported mixed second-quarter results as the electric vehicle manufacturer faced plant closures in Shanghai and supply shortages.

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Tesla said adjusted earnings are up 57% from the same period last year to $2.27 per share. Analyst was expecting $1.81. Revenue rose 42% to $16.1 billion, but below expectations of $16.54 billion. Tesla shares rose 9.8% on the report.

Tesla competitors include: Rivian (RIVN), General engines (GM) and Ford Motor (F) alongside its Chinese rivals.

And now that Tesla is making cars in Germany, it will be pitted against electric vehicles with three established German names: Volkswagen Group (VWAGY), BMW (BMWYY) and the Mercedes-Benz division of Daimler AG (DDAIF).

Does Musk bite off more than he can chew?

It can be argued that no CEO has taken on more responsibility than Elon Musk. In addition to running Tesla, Musk is also the founder and chief executive of SpaceX, which has a mission to colonize Mars. SpaceX also owns and operates the Starlink satellite Internet network. Musk is also the founder and CEO of tunnel maker the Boring Co. Musk also runs Neuralink, which aims to link human brains to computers.

With all that going on, Musk watchers say he may have overloaded himself with the plan to buy Twitter. In that regard, dropping that plan could have benefits.

Controlling Tesla Shares

According to the IBD Stock Checkup tool, Tesla stock has a healthy IBD Composite Rating of 90 out of 99. When choosing growth stocks for the greatest potential gains, based on the CAN SLIM investment paradigm, target those with a Composite Rating of 90 or higher.

The stock also has a Relative Strength Rating of 87 out of 99. The rating means Tesla stock has outperformed 87% of all stocks in the IBD database in the past 12 months. Ideally, look for stocks with an RS rating of 80 or higher.

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The accumulation/distribution rating is B. That rating analyzes price and volume changes in a stock over the past 13 trading weeks. A grade of A signals heavy institutional purchases. The lowest rating of E means heavy sales. Consider the C class neutral.

In the stock market, timing is crucial. So when looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower risk entry points that also offer solid potential rewards.

Is Tesla Stock a sale?

Tesla is currently not for sale. It has reached resistance near the 200-day line, so the short-term outlook is poor. After a strong July, this pullback is not surprising, and the stock is well below previous highs.

Amid the current volatility, it is an important time to read and follow IBD’s The Big Picture column.

Follow Brian Deagon on Twitter at: @IBD_BDeagon for more information on technology stocks, analysis and financial markets.


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