No, the market's not going to fall out of bed.
There are just too many good stocks with strong earnings growth, ringing up huge profits with lots of momentum behind them, driving all the major benchmarks higher.
Then there's Tesla Inc. (Nasdaq: TSLA).
Sure, it's considered a tech darling. But it's not. In reality, it's a car company jumbled in with a solar panel company and a battery company, masquerading as one unified tech company.
Sure, it's considered a market darling. But it's not. Tesla's stock is stuck in the mud and going sideways.
Sure, it's got earnings growth. But these aren't "real" earnings – they're engineered earnings.
The market has strong underpinnings, enough to weather any serious rounds of profit-taking. Tesla, on the other hand, has no profits to hold it up. If the market dips (especially if tech stocks dip on profit-taking), Tesla's profitless and sideways stock is headed lower.
Even if the market continues higher, Tesla's going to have to face reality over its Q4 earnings.
If they come out at the end of February and aren't a huge upside surprise (and they won't be), if earnings are below consensus estimates (which they will be), and if they're burning through more cash than they're already spending (which has already happened), then the stock is going to keel over and shake Elon Musk groupies to their core.
Here's how smoke and mirrors have transformed a lackluster company into a tech darling and exactly how to trade Tesla's fall when its luck runs out…
Tesla's Basic Metrics Are Awful
Over-hyped Tesla has a market cap of $58 billion. That's a lot of hype.
This "genius" company is essentially a car company that everyone believes is all these other companies rolled into one giant tech juggernaut. And it is, but only because Elon Musk wants to build that hype past the breaking point.
Tesla has total revenue of $10.75 billion but EBITDA of less than $250 million, negative profit margins (across all its "businesses"), negative cash flow (big time), negative return on its equity, and a whopping $11.75 billion in debt (and counting). It burned through more than $1.15 billion in cash it borrowed in the junk-bond market over the summer, and it burned through even more last quarter.
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What it's doing to quell the nervousness over its cash burn is pulling forward revenue into current quarters to make itself look better. It's booking car payments immediately and delaying operating expense payouts more than 90 days in some cases.
It's even gone the ABS (asset-backed securities) route, setting up the Tesla Auto Lease Trust's initial 2018 A-Series ABS offering of pools of commercial and personal closed-end leases of the cars, crossovers, and trucks. Its underwriters will be Citigroup, Deutsche Bank, and Bank of America Merrill Lynch.
Translated, that's all about packaging leases to sell to institutional investors to get cash because Tesla's burning through it. But it has to sell more cars and trucks that it hasn't even built yet to get those leases.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.