An Analysis of Tesla (TSLA)

Description of the company(From Yahoo Finance) – “Tesla Motors, Inc.  designs, develops, manufactures, and sells electric vehicles and stationary energy storage products in the United States, China, Norway, and internationally. It primarily offers sedans and sport utility vehicles. The company also offers electric vehicle powertrain components and systems to other manufacturers. Tesla Motors, Inc. sells its products through a network of Tesla stores and galleries, as well as through Internet. ”

Tesla Motors gives us many reasons to be wary:

  • Piotroski score of 2
  • Stating that risk-free deposits are equivalent to pre-orders
  • Beneish M Score of over 7.5

Green Flag

-People Love the Stock: This isn’t a quantiative reason, and as a result I can give you a chart without creating a long strategy, but people absolutely love TSLA and will stay invested in TSLA no matter what the company is doing. These people will most likely keep the share price high no matter what. However, I don’t believe this will create growth in the share price, and may actually be bad for Tesla in the coming years.

-Low Positive Beta: Beta identifies how correlated that company is to the overall market, and as a result how volatile that company is. If a company has a beta of 1 it is almost exactly correlated to the overall market. If beta is negative, it has a negative correlation to the market i.e if the market goes up the stock price typically goes down. Tesla has a beta of 1.01, so, in theory the risk of Tesla mirrors the risk of the market.

When we create a strategy that looks for companies that have a beta between 1 and 1.5 we find that we actually do make money. This may be a good sign for Tesla.

Red Flags:

Low Piotroski Score: A piotroski score is a score developed by a University of Chicago professor that analyzes nine different criteria based on a company’s financials and returns a score that reflects a company’s value. In the case of Tesla, they scored a 2 out of 9. How does a score this low effect a company, let’s figure that out

This screen takes every company that has a score lower than 3 and holds them for a quarter. Though you don’t lose money you don’t make much money, and you do so at a standard deviation that is double the overall market.

High Beneish Score: The Beneish M-Score is one of the best ways to analyze whether or not a company is being truthful on their financial statements. With all of the speculation around how TSLA is reporting their earnings we can reference this score to figure out the real probability that Tesla is being dishonest. For a company to pass this test they must have a score below -2.22. However, in the case of Tesla, they have a score over 7.5.

Here is a strategy where we take and invest in companies that have a score above 7.5 – like Tesla. We hold onto these companies for a quarter and then reevaluate. Unlike the first red flag we do actually lose money here; though, not a lot. Again, we lose money at a higher standard deviation than the overall market.

Negative EPS: This is a huge thing for a company, and tells investors whether or not that company is actually making money. Now, we all know that Tesla isn’t making any money, so this number isn’t all that surprising. What is surprising is the fact that they are hoping to get out of this slump after the release of their Model 3 – the entry level vehicle that should be rolling out by the end of this year. This has led to Elon Musk sending out some odd tweets regarding the “pre-orders” which are just risk free deposits to secure the possibility of getting a car. These can be cancelled at any time and there will most likely be a huge cancellation rate(over 60%) when compared to previous numbers presented by Tesla. As a result, we are going to assume that they are going to keep their incredibly high EPS of -7.00.

This strategy actually did so bad that I had to put it on a log scale so that you can get a real feel for how much money this strategy actually lost.


All of the signs that I see point towards the fact that Tesla is incredibly overbought. Since last week Tesla shares have fallen roughly $14, and all of their fundamentals point towards the fact that this company doesn’t really have much behind it. That paired with the skepticism arising from their most recent earnings report makes me want to say to stay away from Tesla at all costs – or at least they get this whole thing under control and the launch of the Model 3 is a success.

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