Beware the Cult of Tesla (TSLA), Says Gundlach

NEW YORK (TheStreet) -- Bond expert Jeff Gundlach turned his eye to equities on CNBC Thursday, giving his thoughts on stock favorites Tesla (TSLA), Google (GOOG) and Apple (AAPL).

The CEO of investment firm DoubleLine Capital said he finds Tesla "fascinating," particularly in the "cultish" devotion it inspires in investors and customers. However, he notes his suspicion over its $22.3 billion market cap, given competitors General Motors (GM) and Ford Motors (F) continue to hit record highs.

"There's something wrong with this picture," he said, noting the car sales have to come from somewhere.

Shares of the electronic car manufacturer are down 0.4% to $182.82 as of 1 p.m. ET. Year to date, shares of the electric auto maker have gained 441.1%, far exceeding the S&P 500 21.14% gain.

Regarding Google, Gunlach said he remains wary of a company with a market cap of $297.5, billion trading at 24 times forward earnings.  He recommended the company be "harvested" for capital gains.

As for the iPhone manufacturer, Gundlach said shares remain a safety purchase rather than a moneymaker, especially given Apple's current share price above $500.

Apple shares gained 0.7% to $504.62 while Google was off 0.54% to $893.15 as of 1 p.m. ET.

TheStreet Ratings team rates Tesla Motors Inc as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate Tesla Motors Inc (TSLA) a SELL. This is driven by a few notable 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. Among the areas we feel are negative, one of the most important has been poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for Tesla Motors Inc is currently lower than what is desirable, coming in at 30.28%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -7.52% is significantly below that of the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Automobiles industry and the overall market, Tesla Motors Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • Tesla Motors Inc 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 Inc 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 (59 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 71.1% when compared to the same quarter one year prior, rising from -$105.60 million to -$30.5 million.
  • This stock has increased by 508.90% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in TSLA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

Written by Keris Alison Lahiff.