Although the stock is up 38% year to date, Tesla has lost 22% of its value since shares peaked at $265 in February. But Tesla hasn't done anything different to deserve the punishment. Investors have, seemingly, shifted gears favoring value of growth.
Part of the problem is the confusion that comes with owning this stock. While Tesla's technological capabilities fit well within the realm of Silicon Valley, some investors insist on comparing the company with Detroit's finest in Ford (F) and General Motors (GM). As it stands, no one truly knows how to value the stock.
But that hasn't stopped everyone from offering an opinion, including Steve Cannon, head of Mercedes-Benz USA, who in criticizing Tesla CEO Elon Musk said that the company has "no network." Cannon also described Tesla stores as little shops that don't have service capacity." Others have taken the time to weigh in as well.
Even with the stock's recent decline, Rich Ross, chief market technician of Auerbach Grayson, doesn't believe it's time to take the risk. Ross thinks Tesla fits the criteria of a falling knife and could eventually reach $150 per share, or 27% lower than Tuesday's closing price.
All told, there are many question marks with Tesla's future. And Elon Musk will be pressed for clarity Wednesday when he announces the company's results. And it's not a good sign that expectations have been lowered ahead of the report.
The Street will be looking for earnings of 10 cents per share, 3 cents lower than estimates were 30 days ago. Last year, Tesla posted earnings of 12 cents per share. For the full year, analysts are expecting earnings of $1.78 per share, which would represent a strong year-over-year jump of 128%. And therein lies some of the confusion. As strong as that number appears, it can't be and won't be sustained.
In terms of revenue, the Street are modeling for $699.1 million, a year-over-year jump of 24%. Last year, Tesla posted revenue of $561.8 million. For the year, revenue is projected to roll in at $3.65 billion.
Despite the recent concerns, it's not as if Tesla has stalled. The company has reported strong revenue growth for three consecutive quarters, including a 10% jump in the February quarter. That revenue is still accelerating should be seen as a positive sign.
A lot has been made about Tesla's $5 billion Gigafactory facility, which, back in February, the company announced it would to produce lithium-ion batteries. Investors will pay special attention to what Musk says about this project, which is crucial to Tesla becoming more mainstream.
This is because the plant's main purpose will be to help drive down the cost of batteries by roughly 30%, which will make Tesla cars more affordable. In February, Musk said he wanted the plant up and running by 2017, and once accomplished, the company would begin focusing on production of its third-generation vehicles.
Updates to this progress will certainly drive the stock in either direction, depending on the news. And of course there is the guidance. This is where the company's production run rate will be carefully scrutinized. Musk recently promised, by the end of the year, the company will have a run rate of 1,000 vehicles per week. The current rate is at 600.
Suffice it to say, this will be a very important quarter for Tesla. While the Street loves Elon Musk, analysts have begun to take a wait-and-see attitude. As much as I love the cars, the stock is another matter. Until Tesla's business identifies what's "normal" (beyond 128% y/y EPS growth), these shares are too risky for my taste.
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At the time of publication, the author held no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.