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Is Tesla Stock a Buy Ahead of Earnings?

On Wednesday, Tesla (NASDAQ: TSLA) will report results in the third quarter. After announcing the third-quarter delivery record, expectations for the financial performance of the electric car manufacturer at the time were high. Even more, a rise in stock prices over the past year has raised the stakes for Tesla to maintain its rapid business growth.

Can the automaker survive the hype?

Ahead of Wednesday’s earnings report, some investors may be wondering whether or not they should buy growth stock shares before the update. After all, if Tesla announces better-than-expected earnings and earnings per share, the stock could jump.

To better understand if the electric-car company shares are attractive today, here is a quick preview of the earnings and a review of the current stock analysis.

Tesla Model X interior

Model X. Source image: The Motley Fool.

Strong momentum

Earlier this month, Tesla said it delivered a record 139,300 vehicles during its third quarter. This is a big jump from Q2 – when the automaker’s main car factory was temporarily closed due to coronavirus. Vehicle deliveries rose 53% consecutively in Q3. However, growth has also been impressive compared to last year – a phase of Tesla’s operation ay at full capacity. Deliveries rose 43% year on year.

By 2020, Tesla’s business will benefit from the launch of its new Model Y SUV earlier this year. As the company’s most affordable vehicle, management expects that Model Y sales will eventually rival sales of the Model 3 – Tesla’s best-selling vehicle.

Tesla Model Y

Model Y. Image source: Tesla.

Analysts expect Tesla’s strong sales growth to lead to impressive top and bottom line growth as well. On average, analysts expect revenue to increase 31% year over year to $ 8.26 billion and non-GAAP (adjusted) earnings per share to jump from 51% to $ 0.56.

Tesla stock: Buy, sell, or hold?

With Tesla’s business firing on all cylinders, is Tesla stock a buy ahead of earnings?

The automaker earnings report may, in turn, send stock increases following the report. But sharing can be as easy as a mouthful if Tesla misses the mark in some areas. It is very difficult to guess which direction the stock will move in the status of the report.

Even more, a stock investment should be based on an investor’s view of the company’s long-term potential – not based on the results of a single quarter.

Zooming out despite the current quarter, investors should keep in mind that Tesla stock analysis is priced at tremendous growth over the next decade. The company has a market capitalization of more than $ 400 billion despite trailing 12-month revenue coming in at just $ 26 billion. The free cash flow, or excess cash flow remaining after both regular operations and capital expenditure is maintained, is only $ 800 million during this period.

The market can be said to be priced at both the continued leadership of electric cars and significant market share gains in the overall global car market. Since optimism is already priced in stock, I would prefer a better entry point than $ 445 per share. Perhaps if investors are lucky and the stock drops below $ 400 following the earnings report then the stock may start to look attractive.

For now, however, I will rate Tesla stock with a “hold” that goes into its earnings report on Wednesday. Of course, there is no guarantee that Tesla stock will retreat to this level again. But I did not mind to wait on the side, hoping for a more reasonable appreciation.

Tesla quarterly earnings were posted after the market closed on October 21.

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