Trading Analysis: Tesla Motors retreats into earnings report
Tesla Motors is scheduled to report earnings after US markets close this afternoon. The electric sports car producer is expected to break even on adjusted EPS on sales of $893 million.
Last quarter, the company posted a positive report with adjusted EPS ($0.11 vs $0.04) and sales ($857M vs $813M), coming in well above street expectations. Despite the company’s recent strong record of growth, concerns about how long it can keep it going have weighed on the stock.
Last month, a press report speculating slowing US sales sparked such a big drop in the shares that the company’s CEO Elon Musk took to Twitter to refute the report and indicate continued strong growth.
This action along with the shares’ steady decline since peaking in early September suggests that concerns over how long the company can maintain its growth momentum continue to increase. Traders appear to increasingly be wondering if electric sports cars are a niche market or have the ability to gain more mainstream acceptance.
In addition to the earnings and guidance numbers, traders may also be looking for more information on the US price cut that apparently is related to a change in leasing companies, indications of how big the market really is, its international growth potential and how it plans to approach states that want it to open physical dealerships in addition to selling online.
Although recent declines in the shares suggest that expectations have come back down in recent weeks, the company really needs to come up with something big to get things back on track. With traders more cautious toward momentum plays currently, a miss on earnings or guidance could be punished severely as seen in the dismal reaction to earnings from Netflix, Facebook, Twitter and others this quarter.
Tesla’s shares have had their ups and downs over the last few months. They staged a big rally between May and September, running up from $176.50 to $292.00. Between Mid-August and Mid-October, the shares completed a Head and Shoulders top.
Last month the shares broke the $248.00 neckline and have continued to trend lower. A recent rebound up off of $220.00, which was a 62% retracement of the previous advance faltered near $248.00 retesting the old neckline as new resistance and confirming the downtrend. A recent failure of the RSI at 50 also confirmed that downward momentum remains intact.
Today, the shares have slipped back under $234.30, a 50% Fibonacci level and appear to be dropping within their $220.00-$248.00 trading channel. On a break through the bottom, the shares could retest the $200.00-$205.00 range between a round number and a measured move from the head and shoulders top.