Tesla Motors Inc. (Nasdaq: TSLA) has seen a meteoric rise of 410% since the start of 2013, and the electric automaker is set to announce its third-quarter earnings tomorrow (Tuesday) after market close. TSLA climbed 8% today to $175.18 ahead of the report.
Analysts predict earnings of $0.11 per share for the electric automobile manufacturer. The California-based company suffered an earnings loss of $0.92 per share in the third quarter of 2012.
Analysts are optimistic that Tesla will report a quarterly revenue of more than $534 million, good for an incredible 967% year-over-year increase.
But those aren't the most important numbers investors should watch. The number that could be most impressive when chief executive officer and co-founder Elon Musk makes his announcement Tuesday is Tesla's profit margin.
In a recent conference call, Musk projected a profit margin of 19%. That's up from TSLA's second-quarter figure of 13% and is a significant increase from the first quarter, when Tesla reported a profit margin of just 5%.
Traditionally, automakers report slim profit margins, making TSLA's 19% projections all the more impressive. In their last earnings reports, General Motors Co. (NYSE: GM), Honda Motor Co. Ltd. (NYSE: HMC), Toyota Motor Corp. (NYSE: TM), and Ford Motor Co. (NYSE: F) posted profit margins of 3.6%, 3.5%, 5.4%, and 3.9% respectively.
Musk's profit-margin optimism continues to the fourth quarter, where he is targeting 25%.
Some more good news that investors hope will boost Tesla stock after earnings:
An expanded agreement with battery-producer Panasonic Corp. is expected to increase production of Tesla models and therefore positively impact sales.
The automaker also recently unveiled its "Supercharger Corridor" that allows owners of the Model S to travel from San Diego to Vancouver without having to pay a dime. Charging stations have been set up throughout California, Oregon, and Washington for owners of the electric vehicle.
While these developments, paired with the growth figures, are encouraging for shareholders, not all of Tesla's figures are quite as rosy...
In its last earnings report, TSLA reported a return on assets of -10.2% and an operating margin of -16.4%. So while all signs point to a positive earnings report for the electric vehicle maker, laying money on a company previously operating in the negative is unsettling for many potential investors.
And then, of course, there's the news about the two Tesla car fires in the past two months, which has left some investors wary.
TSLA is up more than 400% since January, but more recently has pulled back. TSLA has dipped roughly 5% in the past 30 days. TSLA opened Monday at $165.00.
It also suffered its biggest one-month loss of market value in October, losing $4.1 billion in value as the share price fell 17%.
If TSLA exceeds its earnings estimates and posts a profit margin of more than 19%, the stock should see a bump in the immediate aftermath.
However, for buy-and-hold investors, TSLA is a risk not worth taking. Trading at an all-time high as recently as September, it's unlikely TSLA will maintain momentum.
The fact that TSLA doesn't offer shareholders a dividend is another strike against the stock.
And if TSLA does not match earnings estimates, the stock could experience a major drop.
The big money seems to be betting on TSLA's run coming to an end...
According to Bank of America Merrill Lynch, big money managers and hedge funds have reduced their TSLA holdings in recent months. Institutional investor ownership in Tesla stock fell to 66% in September from 84% in January, according to CNNMoney.
If you needed more evidence for avoiding TSLA, Musk himself recently pointed out that the stock is overvalued.
"The stock price that we have is more than we have any right to deserve," Musk said at a showroom opening in London this October.
If you were in on Tesla at the start of 2013, congratulations. If you missed the boat, don't bother jumping in now.
This earnings season hasn't impressed anyone - but the stock market keeps climbing. Here's why that disconnect will continue to widen...
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