Will Recent News Hold Tesla Motors Back?

With shares of Tesla Motors (NASDAQ:TSLA) trading around $174, is TSLA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock's Movement

Tesla designs, develops, manufactures, and sells electric vehicles and electric vehicle powertrain components. The company also provides services for the development of electric powertrain systems and components, and sells electric powertrain components to other automotive manufacturers. It markets and sells its vehicles through Tesla stores as well as over the Internet. Consumers and companies are looking to save at the pump, and what better way than with electric vehicles?

Tesla stock has taken a hit after the electric car maker was downgraded by R.W. Baird analyst Ben Kallo on Wednesday and a video of a Tesla Model S catching on fire after an accident was posted on YouTube. According to a statement from Tesla seen by USA Today, the fire did not reach the cabin of the vehicle and no injuries were caused by the accident. Kallo said his decision to downgrade the stock from Outperform to Neutral was caused by significant risks he sees the company facing in the next year-and-a-half, although he remains optimistic about Tesla long-term.

T = Technicals on the Stock Chart Are Strong

Tesla Motors stock has been a high flyer this year as it trades slightly below all-time high prices. The stock looks to be pulling back a bit, so it may need to consolidate after such a strong move. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Tesla Motors is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Tesla Motors options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Tesla Motors Options	80.60%	96%	94%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

As of Thursday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

E = Earnings Are Improving Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Tesla Motors's stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Tesla Motors look like and, more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	105.62%	113.95%	-1.27%	-66.67%
Revenue Growth (Y-O-Y)	1420.08%	1762.78%	677.88%	-13.13%
Earnings Reaction	14.34%	24.39%	-8.77%	8.92%

Tesla Motors has seen improving earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been excited about Tesla Motors's recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Tesla Motors stock done relative to its peers – General Motors (NYSE:GM), Toyota (NYSE:TM), and Ford (NYSE:F) — and sector?

	Tesla Motors	General Motors	Toyota	Ford	Sector
Year-to-Date Return	405.80%	22.96%	36.63%	30.93%	32.16%

Tesla Motors has been a relative performance leader, year-to-date.

Conclusion

Tesla Motors offers electric vehicles that consumers and companies are opting for over other luxury vehicles. Recent news about a Model S catching on fire and a downgrade may be putting downside pressure on the stock. The stock is currently trading slightly below all-time highs but may need time to digest gains from a recent run. Over the last four quarters, earnings are improving and revenues are rising, which has led to excited investors. Relative to its peers and sector, Tesla Motors has been a year-to-date performance leader. Look for Tesla Motors to continue to OUTPERFORM.