Tesla Motors, Inc. (TSLA) is the perfect example of a hot stock that’s experiencing trials and tribulations in what is still a very decent market for equities.
After a pronounced, unheeded valuation price gain on the stock market, the position retrenched significantly following the news of a couple fiery car wrecks. But Tesla co-founder and CEO Elon Musk didn’t try to downplay the investigation by the National Highway Traffic Safety Administration. He did, however, take issue with the agency using the word “recall” to describe its requirement for an upgraded wall adaptor and charging software.
But it doesn’t matter what’s necessary to mitigate any potential fire risk with battery-powered vehicles; he’s got to keep the operational momentum going.
And it looks like he’s doing just that. Tesla’s “Model S” shipped some 6,900 units in the fourth quarter of 2013, surpassing previous expectations. The company said its fourth-quarter revenues will exceed its original forecast by approximately 20%.
The company expects full profitability in fiscal 2013 with current Wall Street consensus of about $0.58 a share. 2014’s earnings-per-share estimate averages $1.50, and total sales are expected to grow 35% comparatively. Future sales figures are likely to be adjusted higher.
While Tesla’s Model S is a stunning four-door sedan, the company has high hopes for its upcoming new vehicle, the “Model X,” which is a hatchback SUV with gull-wing doors. It’s a very intriguing concept, which should have appeal in multiple markets around the world.
Tesla’s share price jumped more than $20.00 a share, or 15%, on news of better-than-expected sales of the company’s Model S. (See “This Company a Model of Entrepreneurship at Its Finest.”)
Even though the company’s valuation has consistently been off the charts with no real benchmark for comparison, the idea of a viable luxury electric vehicle is seemingly just too tempting for many investors. Tesla is a $20.0-billion company on just over $2.0 billion in sales.
Yet, this is how so many initial public offerings (IPOs) or hot stocks trade in good markets. An innovative company is growing significantly without a peer group for comparison. Accordingly, valuation becomes less important than expectations, and it’s the management of expectations that becomes a major focal point for the company.
Stocks like Tesla Motors are awfully good for traders in hot markets like what we’re currently experiencing. Like a developing biotechnology stock with no sales or earnings, the story is about the future and traders will bid the stock with no real regard to traditional financial metrics.
If Tesla Motors were to surprise again on its sales figures this year, this stock could easily reach $200.00 a share, making the company worth more than $24.0 billion. Earnings are less of a concern at this stage of the company’s business development, but they will eventually become a factor that investors will trade off.
For now, Tesla Motors is kind of like the automotive version of 3D printer stocks. Volatility and extreme valuation is a given. But at the end of the day, these stocks still have a positive disposition because this buoyant market is still full of speculative fervor.