NEW YORK (TheStreet) -- A stellar Tuesday has turned into a dreary Wednesday for Tesla (TSLA - Get Report) as the stock pares 4.2% to $138.54. By midday, shares were almost $6 lower than Tuesday's 16.5% gains to $144.32.
The high-momentum stock has seen recent gains on the support of a Morgan Stanley report, which called Tesla the top auto stock to own.
Over the year, the automaker has rocketed 307.5%, one of 2013's biggest market gainers. Since its market debut in mid-2010, it is up 618.9%, compared to the S&P 500's 75% gains over the same period.
However, some believe the stock's run-up has run out of steam. Financial broker and contributor to Real Money Pro Martin Tillier argued on Tuesday, "While a young, dynamic company is grinding its way to profit, the market can be remarkably patient. Once that patience wears thin, however, as it seems to have done with TSLA, no amount of pointing out the unfairness of the situation will help."
"I am convinced that only a couple of quarters of solid profits will turn the sentiment around again and that could now be delayed, making a test of $100 more likely than a quick recovery."
TheStreet Ratings team agrees, rating Tesla Motors Inc as a Sell with a ratings score of D. The team has this to say about their recommendation:
"We rate Tesla Motors (TSLA) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio of 1.20 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, TSLA maintains a poor quick ratio of 0.72, which illustrates the inability to avoid short-term cash problems.
- The gross profit margin for Tesla Motors is currently lower than what is desirable, coming in at 30.44%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, TSLA's net profit margin of -8.92% significantly underperformed when compared to the industry average.
- Compared to other companies in the Automobiles industry and the overall market, Tesla Motors' return on equity significantly trails that of both the industry average and the S&P 500.
- Tesla Motors reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Tesla Motors reported poor results of -$3.70 a share vs. -$2.52 a share in the prior year. This year, the market expects an improvement in earnings (57 cents vs. -$3.70).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 65.3% when compared to the same quarter one year prior, rising from -$110.81 million to -$38.5 million.
- You can view the full analysis from the report here: TSLA Ratings Report