(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of TSLA.)
Tesla's Inc. (TSLA) shares have soared by nearly 30% over the past month, a stark contrast to the broader S&P 500 decline of 6%. But now options traders are betting the stock rises by another 9% in the coming weeks. Meanwhile, the technical chart supports the shares' rise as well.
Tesla's sharp rise amid broader stock market volatility is a result of the company's strong quarterly results. The company delivered a profit that came in well above analysts expectation and defied the skeptics. That profit was a result of the successful ramp-up of its new 4-door sedan, the Model 3. Now the analysts are sharply upping earnings estimates for the company.
The call options for expiration on November 16 at the $340 strike price are overwhelmingly bullish. The number of calls outweighs the puts by a ratio of 10 to 1 with 6,100 open contracts. A buyer of those calls would need the stock to rise to $356 to earn a profit. But even more bullish is the increasing number of bullish bets at $360. A buyer of those calls would need the stock to rise to $368 to earn a profit.
The technical chart shows the stock rising to its next level of technical resistance at $363. Additionally, the relative strength index continues to trend higher, a sign of bullish momentum moving into the stock.
Analysts have increased their fourth-quarter earnings estimates by over four-fold to $2.35 per share. Additionally, revenue estimates have increased by 5%.
Full-year earnings estimates for 2019 have climbed as well, and are now expected to rise to $5.22 per share, up from the previous forecast of $2.86. Additionally, revenue estimates have climbed by 3% to $29.1 billion.
The stock may have finally turned the corner, but for it to continue to rise it needs to execute and deliver strong results. Meanwhile, it also needs to meet the rising expectations of investors to maintain profitability. If that can happen, then the stock may be on the road to an even higher price.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.