History Suggests Jump in Tesla (TSLA) Following Blowout Earnings May Be Just The Beginning

Tesla - Shutterstock photo
Credit: Shutterstock

The last time I wrote about Tesla (TSLA) was exactly one month ago, when the stock was under pressure due to headlines risk. That is nothing new for TSLA, of course. The nature of the company and its founder, Elon Musk, means that its stock is often headline driven. But as I pointed out in that piece, when the effects of those headlines are negative, the stock usually bounces back quickly from those drops. That leads to volatility, which makes TSLA a great trading stock, but the stock had been trending downwards most of this year, making many people question its value as a long-term investment. Investors were looking for something to turn that trend around and they got it yesterday.

Actually, the reversal really started the day after I wrote that piece last month. As expected, there was a quick bounce back, with all the lost ground being recovered within a couple of days, and the stock has never been lower since. The biggest catalyst to date, however, came from yesterday’s earnings. A massive beat of expectations pushed the stock above $300, a level not seen since the spring, so it is unlikely that we will get back to where we were a month ago for some time, if at all.

I am neither arrogant nor naive enough to believe that every investor follows my words of wisdom, so I am sure there are a lot of people who didn’t buy a month ago. After a great earnings report and a huge positive market reaction, they are no doubt wondering, did I miss the boat? The evidence suggests not.


Take a look at the chart above. The white lines are trend lines showing the sustained trajectory following earnings releases. As you can see, the initial reaction to earnings usually starts a trend that lasts, rather than reversing quickly like the reactions to headlines. Even though the stock has jumped twenty percent on this release, history indicates that is just the beginning.

Those earnings, like seemingly everything to do with Tesla, were sensational. There was good news all around. Adjusted EPS of $1.86 absolutely crushed estimates for a loss of $0.42, but that wasn’t all. The company also announced that they are ahead of schedule on their Shanghai factory, expected the Model Y crossover to launch next summer, and that they anticipated making a limited run of the long-awaited and potentially revolutionary Tesla Semi next year as well.

They did miss slightly on revenues, but in context, there is a positive in even that. Tesla has had no problem generating sales for quite some time. Their vehicles are in high demand. What they have struggled with is producing them profitably. The fact that there was such a huge EPS beat on a revenue miss suggests that they now have a handle on that.

Even with all the good news though, one thing is certain; TSLA won’t move in a straight line. There will be more headlines that cause the stock to drop for a while, whether they are about something as inconsequential as the faux outrage at Elon Musk’s, shall we say, unconventional behavior, or as real as NHTSA issues with the new Smart Summon feature. If the past is our guide though, TSLA will deal with any real issues and we will all forget the rest. Those future pullbacks will just be good opportunities for those that missed the earlier opportunities to pick up TSLA at somewhat of a discount.

Like any big growth stock, there have in that past been a lot of comparisons of TSLA to Amazon (AMZN), the poster child of growth over profits. The problem with those comparisons until now was that Amazon had shown, on multiple occasions, the ability to turn the profit tap on when needed, while TSLA had not. Those periods of profitability hinted at what was to come. They quieted the nerves of investors and allowed for the stock to climb by percentages measured in the thousands. This quarter, Tesla showed that they can turn on the profit tap too, and that will give them the leeway needed to keep expanding. That’s very good news for long-term investors, and the stage is now set for some more spectacular gains.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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