Tesla Stock Up 6% Today – Time to Buy TSLA Stock?

The price of Tesla stock is surging 6% this morning in early stock trading action following news that the company will seek approval of a proposal to split its stock during its upcoming 2022 Annual Meeting of Stockholders.

This plan was outlined in a filing introduced by the company with the Securities and Exchange Commission (SEC) today and investors are probably reacting positively to the announcement as a previous 5-for-1 split propelled the price to fresh all-time highs back in August-September 2020.

According to the filing, Tesla will execute the split via a stock dividend. The specifics of the transaction such as the magnitude of the split were not disclosed.

Today’s gains are marking the 9th positive session in the past 10 for the electric vehicle manufacturer’s shares. The rally seems to have started on 15 March when rumors started to circulate about the company potentially raising the price of its vehicles in two of its most important markets – China and the United States.

The move would come as a result of increases in the cost of raw materials caused by supply chain bottlenecks and other situations caused directly or indirectly by the COVID-19 pandemic.

Meanwhile, the company was recently forced to halt its manufacturing operations in China amid a surge in the number of virus cases in the country. At the same time, media reports stated that Tesla’s gigafactory in Germany will start delivering vehicles this month. This facility is designed to produce up to 500,000 units per year.

On 28 March, Elon Musk also tweeted that he expects that Tesla’s vehicles will incorporate Level 4 Full-Self-Driving (FSD) technology before the year ends. Level 4 FSD implies that all of the vehicle’s critical functions can be carried out without human intervention.

What could be expected from this electric vehicle stock following these interesting developments? In this article, I’ll be assessing the price action and fundamentals of Tesla stock to outline plausible scenarios for the future.

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Tesla Stock – Technical Analysis

The performance of Tesla stock this year has turned positive amid this recent rally with shares gaining over 1% thus far.

Meanwhile, TSLA is trading 23.5% above its 200-day simple moving average and 14.1% below its 52-week high of $1,243 per share.

Trading volumes in the past 10 days have either stayed near or surpassed the 10-day moving average as buying interest has rocketed on the back of the positive news outlined above – especially the one associated with Tesla’s first deliveries from Germany.

Momentum indicators are also in positive territory with the Relative Strength Index (RSI) already jumping near overbought levels for the first time since November last year while the MACD is above the signal line and already surpassing November levels. Additionally, histogram readings have been steadily increasing.

Moving forward, the upper trend line highlighted in the chart remains the next area of resistance to watch. It would be plausible to expect that the price action will take a breather in the following one to two weeks. However, the outlook for Tesla remains bullish.

Tesla’s next stockholder’s meeting will likely take place in June this year. Therefore, at least 3 months remain until the company discusses and decides on the proposal to split its stock again.

Tesla Stock – Fundamental Analysis

More details about the stock split proposal will probably be shared with the general public once the materials for the Annual Stockholders Meeting are released.

Other than that, the fact that the company is possibly raising the price of its vehicles in the US and China along with news of Tesla’s first deliveries from its German gigafactory are perhaps more relevant from a fundamental standpoint.

Tesla’s revenues have more than doubled since 2019 led by higher vehicle sales primarily. During that same period, gross margins of its automotive unit have increased by 810 basis points to 29.3% while the automotive services unit – the second largest revenue stream – have also seen its top-line margins improve by more than 1,000 basis points.

The combination of higher sales and gross margins have allowed Tesla (TSLA) to turn into a highly profitable enterprise with the company producing $5.52 billion in profits to shareholders last year resulting in a net margin of 12.6%.

As a result, Tesla produced around $5 billion in free cash flows last year and reported total assets of $62.13 billion including $17.7 billion in cash and equivalents. In terms of its solvency, the company had $5.3 billion in long-term debt including its financial leases.

Based on the market’s forecasts for the firm’s revenues and earnings this year, Tesla is trading at forward P/E and P/S ratios of 94.8x and 12.7x respectively.

Whether these multiples are high or not would largely depend on the investor’s view of Tesla’s prospects. In terms of units, Tesla remains a small brand relative to its competitors. However, the average price of a Tesla is quite high compared to other manufacturers.

If the company manages to keep reducing prices, increasing manufacturing capacity, and further developing its eco-friendly and autonomous driving technologies, Tesla could become the next Toyota, Ford, or GM in terms of units sold in the future.

The road to getting there will likely be tough but the management has thus far proven that it can execute and that is a positive factor that must also be considered when deciding if Tesla stock is investment-worthy or not.

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