TSLA reported 3Q16 results yesterday after the New York close. The numbers were better than admittedly modest expectations: the company sold a record number of cars: it had profits; cash flow was strongly positive–although flattered by better management of working capital and sale of pollution tax credits. Still, a plus. And the stock is up by about 4% in pre-market trading as I’m writing this. (I should mention that other members of my family and I hold small positions in TSLA.)
The fact that a $30+ billion market cap company earned $22 million in a quarter would scarcely be considered good news under most circumstances. Annualizing and rounding up to $100 million for a full year would imply a PE of 300x for the company’s stock! However, TSLA is still to a considerable degree a “dream” or “concept” stock.
The prototypcial “dream” stock is a firm that starts up with the intention of prospecting for gold. It makes what it thinks/says is a significant strike. While the company creates the mine and associated processing facilities, speculation about the quality and extent of the orebody runs rampant. After all, there’s no factual information to contradict any rumors that may float about.
Then the mine opens. There are now facts available about ore quality and mining costs. So there’s no more dream–only brass-tacks reality. The stock typically peaks the day the mine opens.
TSLA’s case is an unusual one. Auto production has been under way for some time. Yet the stock hasn’t reverted to trading on actual results. To some degree the dream has been dented–I find it hard to imagine TSLA could repeat today its 2014 convertible bond offering, whose conversion price was set at $350. But Elon Musk has expanded and reset his aspirations for TSLA often enough during its short life as a public company that at least some version of the dream remains alive. Unless/until TSLA disappoints severely in its results, I’d think the stock will continue to trade without a strong connection to earnings for some time to come.