Oftentimes, when companies fail to meet analysts’ expectations, their stocks slip, but Tesla Motors Inc (NASDAQ:TSLA) is an exception. Despite missing both top-line and bottom-line estimates, TSLA stock has climbed a whopping 39.2% since it reported earnings last month. Does Elon Musk really have magical powers?
Well, that I don’t know. But one thing is for sure: Tesla stock is something special.
Why Tesla Stock Could Soar
For many companies, it’s better to issue conservative guidance and then beat it rather than set the target really high and miss it. That’s because in a market where valuations are bloated, it’s not really a good idea to show investors that you can’t deliver what you promised.
Tesla, however, is doing the exact opposite of what most companies would do. And so far, it has worked.
In the fourth quarter of 2015, the company generated $1.75 billion in revenue and posted an adjusted loss per share of $0.87. (Source: “Tesla Fourth Quarter & Full Year 2015 Update,” Tesla Motors Inc, February 10, 2016.) Analysts polled by Bloomberg were expecting $1.81 billion in revenue and $0.10 in adjusted earnings per share (EPS). (Source: “Tesla Jumps After Projecting Up to 78% Growth in Deliveries,” Bloomberg, February 10, 2016.)
Although Tesla delivered less-than-expected financial results, it is not pulling back on its forward guidance. In fact, the company issued an incredibly bright outlook.
First up are car deliveries. Tesla projected that it would deliver between 80,000 and 90,000 “Model S” and “Model X” vehicles this year. This would be an increase of between 58% and 78% from the 50,580 cars it delivered in 2015. Moreover, the forecasted delivery numbers also beat the 76,200 vehicles expected by analysts. (Source: “Tesla Barely Hits Q4 Goal Amid Cautious Start for Model X,” MarketWatch, January 4, 2016.)
Then there’s the really good part: TSLA stock bears have always argued that the company is losing too much money, but that is about to change. For 2016, the company plans to be net cash flow positive and generate non-GAAP profits.
If you wonder whether Tesla can actually achieve that, look what the company managed to do with cash flow in the fourth quarter of 2015:
Source: Tesla Fourth Quarter Earnings Report
The Bottom Line on TSLA Stock
Of course, no company is perfect. For Tesla, production delays of the Model X could be a drag. Moreover, whether the company can successfully execute its plans to build the mass market “Model 3” is still uncertain.
On the bright sight, Tesla’s business is still booming. If the company gives more indications of becoming profitable this year, TSLA stock could soar even higher.