September 12, 2013
Gustavo Moreno
senior equity analyst
gmoreno@williamoneil.com
310.448.6908
800.545.8940 | williamoneil.com
In This Report
With Tesla’s (TSLA) stock already up
780% since its IPO, many investors are
wondering if its run is over. Not us. Find
out why Tesla’s rare technical chart
pattern, coupled with its visionary
leadership and innovative product and
business model could place the stock in
a historic group of high fliers.
We See Further Charge in Tesla’s Run
For the better part of the 2000s, only two hybrid cars—Toyota’s
Prius and Honda’s Insight—made much headway into the American mainstream car market. But late in the decade, hybrids began to proliferate, and in the current decade, fully electric, plug-in
cars, such as the Nissan Leaf and Chevy Volt, have begun to make
real inroads. But it took Tesla Motors (TSLA) to create an electric car
As of 9/11/2013
that captured the imagination and aspiration of the public with its
Symbol
quality, style, and magnetism.
Price
Tesla Motors
TSLA
$163.52
Market capitalization (billion)
$19.81
Like most stars that jump onto the scene, it only seems to have
Shares outstanding (million)
121
happened overnight. It took Tesla 10 years of grueling innovation
3-year revenue growth rate
97%
to produce a successful vehicle, and it wasn’t until this past May
EPS rank
that Tesla posted its first profitable quarter—with sales rising 1,762%
RS rating
to $562 million.
Year-to-date performance
78
99
383%
Only a handful of stocks out of tens of thousands becomes a true
high flier, one whose valuation can expand 120% from its pivot. This
report outlines the key qualities of Tesla that suggest its potential to
become part of this elite group.
So, while some investors are looking to short TSLA, here’s why we at
O’Neil Equity Research don’t see it that way at all.
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September 12, 2013
Powerful earnings and revenues
Tesla began to show positive revenue growth of 678% in Q4 2012,
but it wasn’t until after its first profitable Q1 2013 earnings report
that the stock began to climb. It reported revenue and earnings
Gustavo Moreno
senior equity analyst
gmoreno@williamoneil.com
310.448.6908
800.545.8940 | williamoneil.com
growth of 1,762% and 116%, respectively, beating analysts’ estimates. On August 7, 2013, it reported Q2 2013 results, racking up its
third straight positive quarterly earnings report. It was also its second straight triple-digit positive earnings percent surprise. The stock
has moved 383% year-to-date.
Innovative product and business model
The Tesla Model S is at the top of its class. It’s a high-performance,
fully electric vehicle that can travel up to 265 miles on a single
charge—nearly triple the industry average. The Model S recently
received the highest safety rating in all categories by the National
Highway Traffic Safety Administration, was named Car of the Year
by Motor Trend, and received a near perfect score of 99 out of 100
from Consumer Reports. The only thing growing faster than its ac-
A visionary leader
CEO and Product Architect, Elon Musk,
is the visionary behind Tesla. Musk
is also the founder, CEO and Chief
Designer of SpaceX, a manufacturer
of advanced rockets and spacecrafts.
As if these roles didn’t give him enough
of an innovation outlet, he also serves
as Chairman of Solar City (SCTY), the
leading provider of solar power systems in the U.S.
colades is demand for its cars; it hit record sales in North America
Prior to Tesla, Musk co-founded PayPal,
last quarter and expects to deliver 21,000 cars this year, up eight-
the hugely successful payments com-
fold year-over-year.
pany, which was sold to eBay (EBAY) in
Tesla is also proving innovative in its business model. Using a directsales approach, rather than selling through a third-party car dealer,
the Company is cutting out the middleman and challenging the
traditional automotive business model. Tesla owns and operates
2002 for $1.5 billion. Musk holds a B.A.
in physics from the University of Pennsylvania and a B.A. in business from the
Wharton School.
41 of its own showrooms, and since the product comes directly
from the manufacturer, haggling is taken out of the equation, and
the cars sell for the fully-listed sticker price. Car service is also performed by Tesla-owned garages.
Since automotive sales laws are mainly regulated on the state level, several states, dealer associations, and lobbying groups, such
as the National Automobile Dealers Association, are putting up a
fight against Tesla’s disruptive direct-sales strategy, seeing it as a
threat to their old way of doing business. Back in April, Virginia denied the Company a dealer license to open a store. And in July,
Texas legislators failed to back a bill that would have loosened restrictions on automaker-owned dealerships.
But Tesla CEO Elon Musk (see sidebar) is battling steadily state by
state, and the tide seems to be turning in his favor. A bill banning
Tesla from selling its cars directly to consumers, which won accep-
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September 12, 2013
tance in the North Carolina Senate, was voted down by its House
of Representatives. Similar bills were struck down in New York, Massachusetts, and Minnesota. Meanwhile, in New Hampshire, a bill
that strengthens the power of local dealerships against automakers also included a Tesla-friendly clause that allows carmakers with-
Gustavo Moreno
senior equity analyst
gmoreno@williamoneil.com
310.448.6908
800.545.8940 | williamoneil.com
out franchised dealerships to sell cars direct-to-consumer. There
has even been a petition started on whitehouse.gov asking for the
federal government to stop these state bans and, in effect, force
the old establishment to change rather than stifle competition.
Historically rare and powerful chart pattern
If Tesla’s strong fundamentals, high-quality product, visionary leader, and ability to innovate aren’t enough to persuade you that this
stock is actually not too expensive, there is something else special
about TSLA. Its price action has created a high, tight flag (HTF) pattern, one of the strongest, most auspicious chart patterns possible.
Future models
In 2014, Tesla plans to deliver its Tesla
Model X crossover, its third fully electric
model behind the Roadster and Model
S. A smaller, mass-market sedan is
A HTF begins with the stock moving generally 100% to 120% in a
expected to debut in 2016. According
very short period of time (four to eight weeks), constructing the
to CEO Musk, the car will be smaller
flagpole. It then consolidates with a base depth of no more than
than the Model S and half the price.
10% to 25%, usually in three to five weeks, creating the flag (see
chart).
TSLA
% gain
from HTF
Company
No. of
weeks of run
Bethlehem Steel
277%
19
Zenith
204%
29
Certain-teed
180%
43
Syntex
481%
25
Rollins
262%
36
TASER International
453%
21
Average
310%
29
Source: PANARAY
Based on our model studies of the best growth stocks of the past
century, many stocks that form HTFs move significantly higher from
this formation. Some outstanding examples from our studies are
Bethlehem Steel, May 1915; Zenith, October 1958; Certain-teed,
January 1961; Syntex, July 1963; Rollins, July 1964; and TASER International, November 2003. See a comparison table at right.
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September 12, 2013
So, coupling Tesla’s great qualities as a company with TSLA’s HTF,
and you have the makings of a rare high flier. And why are HTFs
and hugely outperforming stocks so rare? A HTF is associated with
stocks that engage the public psychologically, creating a buying
euphoria that distinguishes the stock from a run-of-the-mill growth
Gustavo Moreno
senior equity analyst
gmoreno@williamoneil.com
310.448.6908
800.545.8940 | williamoneil.com
investment. These are historical moments when those who are hard
set on using P/E to measure what’s left in a stock get left in the dust.
Because the kinds of stocks associated with HTFs can expand to
multiples as high as 200 times.
That TSLA will perform like these great stocks is, of course, hardly
a given. A HTF is difficult to interpret correctly, and anytime you
are working with a force like euphoria risk increases. But consider
this scenario: After TSLA’s IPO in July 2010, it consolidated before
setting up a HTF in Q2 2013. Based on historical precedent dating
back to 1915 (the earliest example in our comparison), if TSLA’s HTF
is a correct interpretation, and if we use the lowest percentage
gain from the HTF model stocks (Certain-teed’s 180% gain), TSLA
would hypothetically rise to $322.
As it stands now, TSLA has only run 11 weeks from its pivot. So we
are watching closely. Tesla may become one to add to the list of
best-performing stocks of all time.
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September 12, 2013
SOURCES:
1. SpaceX - http://www.spacex.com/
2. Solar City Website - http://www.solarcity.com/
3. SCTY Prospectus - http://www.sec.gov/Archives/edgar/data/1408356/00011931251
2500537/ d229977d424b4.htm
4. TSLA Prospectus - http://www.sec.gov/Archives/edgar/data/1318605/ 000119312511149963/ds1.htm
5. TSLA 2012 Annual Report - http://www.sec.gov/Archives/edgar/data/1318605/ 000119312513096241/d452995d10k.htm
6. TSLA Q1 2013 Report - http://www.sec.gov/Archives/edgar/data/1318605/ 000119312513327916/d549636d10q.htm
7. http://www.latimes.com/business/autos/la-fi-hy-prius-tesla-lead-california-car-
sales-20130823,0,2642983.story
8. http://www.usatoday.com/story/money/cars/2013/05/09/consumer-reports-tesla-
model-s-electric/2146175/
9. http://www.businessweek.com/articles/2013-07-18/the-tesla-electric-cars-creators-
chase-their-iphone-moment
10. http://gas2.org/2013/07/01/tesla-wins-big-in-north-carolina-and-new-hampshire/
Gustavo Moreno
senior equity analyst
gmoreno@williamoneil.com
310.448.6908
800.545.8940 | williamoneil.com
William O’Neil + Company, Incorporated
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of quantitative, fundamental, and technical expertise in global stock buyand-sell recommendations. Its core method profiles stocks displaying the
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drawn from the firm’s industry-leading database.
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