If you examine my last TSLA chart, I pointed out that at 192 you could buy TSLA at a low 7.2 x's sales and get a good entry price. In the summer decline, which was a combination of market correction, reduced annual sales targets and slower release of Model-X and trouble with manufacturing the Model-X and very weak prices for crude oil, TSLA had a sharp drop to 195 and then a monster rally up to 9 times sales at 270.
Since that rally we have new sales numbers and the 7.2 PSR level has lifted from 192 to 205 and represents the new buy level. TSLA rallied on earnings (losses, actually) to the 230+ level where it hit 8 PSR and has been drifting back down as the short-sellers took their losses and packed it in to survive to fight another day.
So now we find ourselves fighting between PSR levels of 8 at the tops and 7 at the bottoms for TSLA whereas a year ago or more we were at 10-14. The valuation has come down 50% so far and if TSLA keeps grinding sideways it will be down to 3.5 in a year to 18 months. Given that TSLA has very high profit margins once at scale AND given that TSLA is a software company and a battery manufacturer and a home & business energy backup company, I could see the long term valuation range for TSLA be much higher than other auto manufacturers, which typically have PSR's of less than 1.
We all need to see profitabilty, of course, but looking at the FUNDAMENTALS on the chart helps you to get bullish when the price FALLS and bearish when the price RISES instead of the opposite. Most technical traders get caught being bullish at the tops and bearish at the bottoms, but including fundamental valuation ranges can help tilt the odds in your favor.
207.05 close Friday, 11/12/2015
To be clear - buy the green box (7.2 PSR) and sell in the blue box (8 PSR)
Tim
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TSLA reached the blue box (but I clearly didn't update the status when it hit that level, sorry.) - I hope you banked your profit too.
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timwest
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BULLSEYE
IvanLabrie
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Spot on ;)
mazdaki
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Hi tim, the spread chosen for the next rachet down is PSR is too narrow. Based on your chart at least a reduction of 2 is in order. So, My guess would be MAX PSR of 8 and low of at least 6. We are heading into a downturn and the downturn risk outweighs the upturn.
timwest
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I have considered that too, but the valuation bands tighten as more investors get more familiar with the company and the accuracy of forward forecasts. So, I'm keeping that in mind about 6-8. I did mention selling "at the money calls each year for the next 3 years" while we trade this stock back and forth across the valuation range.
mazdaki
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Hi Tim, the reality is that fundamentals do matter, and in the hype cycle we were at the peak a while back. The competition is coming out of the woodworks,the negative press will pile on when it is revealed that the ugly X lacks demand and global market saturated with price of oil to remain low for the next decade.
timwest
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SO much competition is coming onboard. I am going to drive the Audi EV which is a hybrid, but at 37K and 20 miles of range at all electric, it is a decent alternative and a very nice ride (to be confirmed). The Chevy Bolt and Chevy Volt are interesting again. The styling and size are problem and I haven't heard much about their SAFETY, which is Tesla's biggest and best argument in my book. Tesla is outselling all of the other cars in its class, according to some diligent research from SeekingAlpha. I'll update this chart and see where the new levels are. The best strategy for TSLA is long term covered calls, which has been my perspective for a long time now, mentioned multiple times in my charts here.
G13Man
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just commented on your older version of this chart
But over all i think this company is over a realistic P/E ratio
but that does not include what the battery factory will contribute !
and am waiting to see it come on line and contribute the capacity that i hope will be needed !
[ & for future battery improvements ]
timwest
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What do you mean by "over all i think this company is over a realistic P/E ratio"?
G13Man
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they do not make enough cash for what the stock costs , they are not profitable yet , the P/E is to high
timwest
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I wish you could look at earnings at this stage of growth. Amazon hasn't made any meaningful profits as of yet and it's market cap is more than 10 times TSLA. If you are building a brand and building out infrastructure (charging stations, especially, a battery manufacturing plant that will last 30+ years yet you have to write it off in 5-10 years) the earnings are not the metric you want to look for. You watch sales and you monitor the credit markets and the health of the equity market to tap for new financing. The top investors at Tesla are also well connected and can conjure up investment capital when it is deemed ready. It doesn't make much sense to have $100 billion in cash sitting around doing nothing, but it makes far more sense to sell shares of TSLA in the future when they are ready to deploy the capital. Sorry for the long answer to your comment about P/E multiples.