Imagine being approached about investing in a company whose financials looked like this:
Return on Assets: negative 31%
Return on Equity: negative 18.3%
Return on Investment: negative 53%
Operating Margin: negative 33%
Profit Margin: negative 31%
2012 Earnings Growth: negative 45.85%
Now, what if, on top of having to digest these lousy stats, you were told that the company is facing legal challenges throughout the country that threaten where it can sell its product.
Would you think you were being peddled some kind of scam; or that someone was playing a joke on you? Better yet, would you think the person who’d approach you about this investment was simply nuts?
Well, investors who threw caution to the wind, believing that Tesla Motors Inc (NASDAQ:TSLA) would sooner rather than later begin trading in the triple digits are the ones sitting pretty right now…and laughing.
Humble beginnings
Few thought, or even believe now, that the company headquartered in Palo Alto, Calif. and founded by PayPal co-founder Elon Musk could grow into being a formidable player in the auto industry. Since being founded in 2003, the company has laid an impressive foundation to become just that. So impressive have its gains been that industry observers say it could be the first automotive startup since the 1920s to achieve quarter over quarter success in the industry.
Although Tesla Motors Inc (NASDAQ:TSLA) was founded in 2003, it was only this year that the company was able to record its first quarterly profit as a publicly traded company. Prior to this historic event, the company’s future looked grim. As early as January, liquidity issues presented themselves that could have impeded the company’s production of its cars. To avoid such an ugly situation, the company sold shares.
Moving forward
With that behind it, the company moved forward with expanding its network of charging stations this spring. It also began offering financing offers to those who would find it difficult buying the cars considering their starting prices of $60,000.
It also received noteworthy acknowledgements about its vehicles, including being named Motor Trend’s car of the year and receiving a top rating from Consumer Reports. And almost in a move showing its financial strength, Tesla Motors Inc (NASDAQ:TSLA) last month paid off a loan from the U.S. Department of Energy nine years early.
Proof in the first quarter
The loan was key to the company being able to produce its Model S car, its top seller so far. In fact, during the first quarter, more people bought the Model S than did some of the top sellers for BMW, Mercedes, and Audi. Furthermore, Tesla Motors Inc (NASDAQ:TSLA) is on track to sell between 20,000 and 21,000 of the Model S cars this year.
Tesla Motors Inc (NASDAQ:TSLA) was able to silence naysayers over its financial performance during the first quarter by beating analysts’ estimates. Revenues totaled $562 million, which was roughly $30 million more than they were during the first quarter of last year.
As part of its first quarter earnings report for 2013, the company said it profited $11.2 million. This may seem like small potatoes, but it was a huge accomplishment for the company. Remember the numbers I listed above…
Competition headwinds
Tesla’s competition includes Ford Motor Company (NYSE:F) which makes the Fusion Energi. Like Tesla, it reported record sales for its electric vehicle, reporting that it sold 416 of them in May. It’s noteworthy that Ford Motor Company (NYSE:F) has increased the sales of the car every month since it began selling it in February.
Toyota Motor Corporation (ADR) (NYSE:TM) is also a formidable player in the electric vehicle market. Its Prius continues to increase its sales each month; in May, they totaled 678. So far this year, Toyota Motor Corporation (ADR) (NYSE:TM) sold about 3,600 Priuses. Of note, however is that the company sales this year have slowed and will likely be less than they were last year. According to InsideEvs.com, the number of the Prius units may not match the 12,750 it sold last year, which would make the plug-in Prius the first EV sold in the U.S. to lose sales year-over-year.
Then there’s General Motors Company (NYSE:GM), which builds the plug-in hybrid Chevrolet Volt. Its sales seem to be the weakest of the bunch. In May, about 1,600 of the cars were sold, which was a 4% decline from May of 2012. General Motors Company (NYSE:GM) is preparing for the release of the Chevrolet Spark EV this month, which would be its first new electric car in the U.S. since it rolled out the Volt in 2010.
One of the major advantages Ford, Toyota, and GM have over Tesla deals with the way Tesla sells its cars. Instead of selling them through a dealership, it sells them directly to consumers. This is against the rules and regulations of many states, which handicaps Tesla from being able to sell its cars in key markets. This includes Texas, where lawmakers did not take up a legal matter that would have allowed Tesla to sell there.
I’d buy Tesla now that its stock has sold off and is trading below that 52-week high it achieved when it was riding a wave of good news. Yes, its fundamentals have been dreadful, but the company is well-positioned for the near-term to provide some considerable shareholder value.
Tedra DeSue has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, and Tesla Motors . The Motley Fool owns shares of Ford and Tesla Motors.
The article With These Stats, How Is This Company a Buy? originally appeared on Fool.com and is written by Tedra DeSue.
Tedra is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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