Tesla (NASDAQ: TSLA) stock fell 11% through 11:45 a.m. ET Wednesday after the company badly missed analyst forecasts for earnings Tuesday night.
Heading into the second-quarter report, Wall Street forecast the electric automotive leader would earn $0.62 per share on sales of $24.8 billion. Tesla exceeded the latter expectation, reporting Q2 sales of $25.5 billion. But this sales growth came at a price to profit: Earnings were only $0.52 per share.
Tesla profits collapse
Not all Tesla’s news was bad. Notably, the company’s energy generation (i.e., solar panels) and storage (i.e., batteries) division — which consider it or not is now more profitable (with an 18.9% gross profit margin) than the automotive business, doubled in size to $1.5 billion in sales. And free money flow for the quarter increased nicely to $1.3 billion.
Automotive sales, nonetheless, fell 7% yr over yr. And total sales were up an anemic 2%, despite beating estimates.
Particularly worrisome is the undeniable incontrovertible fact that operating expenses surged 39% throughout the quarter. Falling sales and rising costs shouldn’t be normally a recipe for strong profits, and this proved true for Tesla, too. The company’s operating profit margin shrank by greater than a third, to 6.3%. Operating profits fell one-third to $1.6 billion. Net profits cratered — down 45%.
What it means for investors
Even then, the bad news wasn’t done. Seems, each analyst forecasts and Tesla’s $0.52 headline result were put in the form of skilled forma, non-GAAP profits. When calculated in accordance with generally accepted accounting principles, Tesla’s profit per share was only $0.42.
So what does this mean for investors?
At $700 billion in market capitalization and with $12.4 billion in trailing earnings, Tesla stock currently costs greater than 56 times trailing earnings. That might not necessarily be a nasty thing if Tesla was still growing its sales by 50% or 70% annually, as happened throughout the pandemic. Nonetheless, with Tesla stock stuck nearly in neutral at a 2% sales growth rate, and profit margins plummeting, it’s hard to call Tesla stock a buy.
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Wealthy Smith has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Tesla. The Motley Idiot has a disclosure policy.
Why Tesla Stock Just Crashed was originally published by The Motley Idiot