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Tesla is a Zacks Rank #2 (Buy) and it is the Bull of The Day. This stock has a lot of haters, people who believe that the cars are worthless just like the stock. They will direct your attention to negative cash flow, the company missing deadlines and just about anything to get you to sell your shares.
The most comical event of late came from Vilas Capital’s CEO who proclaimed that the company would go bankrupt in the next 3 to 6 months. Of course John Thompson made this hysterical assertion after he purchased puts, and noted in his shareholder letter that his fund would greatly benefit if a fall in share price happened sooner rather than later.
On The Verge Of Bankruptcy?
CEO John Thompson then went on a fast media campaign and talked about TSLA suppliers abandoning the company. He mentioned Goodyear Tire, whom he suggested had a 2% margin on the tires they sell. His example of the company selling TSLA $100M of tires to make $2M implied a risk of $100M (which would occur if TSLA accepted all the tires they would use for the year upfront – which is pretty illogical) because the company might not pay its bills.
Thompson talked about how the company was recently downgraded by a credit rating agency – those same outfits that gave a big heads up just prior to the great recession that credit default swaps and other financial instruments with even small degrees of complexity were nothing to worry about. But one has to wonder if the CFA bothered to take a look at the cash position of TSLA
Zacks Investment Research has a great tool that can help give a quick reality check on the situation. Research Wizard can help me chart tons of data points that CFA’s and non-CFA’s alike can learn from.
At the time when Thompson opined on the likely bankruptcy for TSLA, he would have seen a cash position of $3.5B – and that number has not slipped to $0 as the bears would have you believe. Instead, the cash position fell to $2.7B in the most recent quarter.
Simple math tells you that they burn rate was $800M in the quarter. That is a lot! But one has to wonder, where did it all go? Maybe it was building out a Gigafactory or making some cars or something like that…
Now I am not suggesting that the $27B in assets should be the reason you buy the stock, I am just suggesting that the probability of a bankruptcy in the company months is awfully far-fetched.
Beyond Bankruptcy
The two charts of total cash and assets may serve to disprove the thesis that bankruptcy is imminent, but there has been a chart that I am seeing more and more lately.
The last few times I have stepped up to present the bull case for TSLA I have seen this type of chart come back at me. It is hard to take this sort of thing as anything short of condescending… giving me a “pro tip” – but the author isn’t a CFA. In fact, I do have to admit he is a better blogger than me but is where it stops.
The idea that this short (if the blogger actually has any skin in the game) presents is that ever increasing losses are a bad thing. And that is true, but investors tend to buy stocks based on what they WILL do, not what they have done. This is a pretty basic premise that most investors understand, but for those that don’t I just gave you a real “pro tip.”
We have heard from many shorts that they will remain short until the company is profitable. Well guess what… some covering trades are on the horizon!
Sales Growing
Speaking of looking forward, one key idea is to look at where analysts are expecting future sales to come in.
It stands to reason that increased sales will lead to increased earnings and that is a fundamental driver of the stock market.
Cars.com is a Zacks Rank #5 (Strong Sell) and that makes it eligible for the Bear of the Day article. I felt it was good one to run against the Tesla (TSLA - Free Report) Bull of the Day.
So why is Cars.com a Zacks Rank #5? The quick and easy answer is that earnings estimates have been falling. The Zacks Consensus Estimate has dropped from $2.61 to $2.14 over the last 30 days. The Zacks Consensus Estimate for 2019 has also slipped. It moved from $2.94 to $2.45 over the same time period.
Earnings Miss
I see that Cars.com missed the mark in a big way in the most recent earnings release. The company reported $0.39 but the Zacks Consensus Estimate was looking for $0.64. That is a miss of $0.25 or just a little over 39% under expectations.
Following the miss, analysts took estimates down for this year and next year as well.
Recent M&A Rumor
On May 31 there was an article in the NY Post that said the company hired JPMorgan to help sell the company. This may or may not be true, but the simple fact is once a rumor like this hits the press it isn't going away until the company comes out and says that it is not for sale.
There are several other names in the auto space that are just as interesting as Cars.com.
Ambarella, Inc. just released its latest quarterly financial results, posting adjusted earnings of $0.13 per share and revenues of $56.9 million.
Currently, AMBA is a Zacks Rank #3 (Hold), but that could change based on today’s results. Shares of the company have dipped slightly over the past month, including a 0.3% loss during regular trading hours today.
The stock is currently up 2.1% to $50.41 per share in after-hours trading shortly after its earnings report was released.
Ambarella:
Beat earnings estimates. The company posted non-GAAP earnings of $0.13 per share, beating the Zacks Consensus Estimate of $0.09. Investors should note that this consensus projection has remained stagnant over the duration of the quarter.
Beat revenue estimates. The company saw revenue figures of $56.9 million, just edging out our consensus estimate of $56.23 million. Total revenue was down 11.2% year over year.
Gross margin on a non-GAAP basis was 61.8%, down from 64.3% in the year-ago period. GAAP gross margin was 61.3%, down from 63.9% last year.
GAAP net loss in the quarter was $10.0 million, or $0.30 per share. That compares to GAAP net income of $2.6 million, or $0.07 per share, in the prior-year period.
“We continue to successfully achieve our target milestones in the rollout of our new computer vision technology,” said CEO Fermi Wang. “We are encouraged by the feedback received by customers in the security and automotive markets and believe that our investment in computer vision technology will bring new opportunities for growth.”
Ambarella expects Q2 revenue to fall in the range of $60.0 million to $64.0 million. Prior to today’s report, our latest consensus estimate was calling for Q2 revenue of $68.8 million.
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Tesla, Cars.com and Ambarella highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – June 6, 2018 – Zacks Equity Research highlights Tesla (TSLA - Free Report) as the Bull of the Day, Cars.com (CARS - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Ambarella, Inc. (AMBA - Free Report) .
Here is a synopsis of all three stocks:
Bull of the Day:
Tesla is a Zacks Rank #2 (Buy) and it is the Bull of The Day. This stock has a lot of haters, people who believe that the cars are worthless just like the stock. They will direct your attention to negative cash flow, the company missing deadlines and just about anything to get you to sell your shares.
The most comical event of late came from Vilas Capital’s CEO who proclaimed that the company would go bankrupt in the next 3 to 6 months. Of course John Thompson made this hysterical assertion after he purchased puts, and noted in his shareholder letter that his fund would greatly benefit if a fall in share price happened sooner rather than later.
On The Verge Of Bankruptcy?
CEO John Thompson then went on a fast media campaign and talked about TSLA suppliers abandoning the company. He mentioned Goodyear Tire, whom he suggested had a 2% margin on the tires they sell. His example of the company selling TSLA $100M of tires to make $2M implied a risk of $100M (which would occur if TSLA accepted all the tires they would use for the year upfront – which is pretty illogical) because the company might not pay its bills.
Thompson talked about how the company was recently downgraded by a credit rating agency – those same outfits that gave a big heads up just prior to the great recession that credit default swaps and other financial instruments with even small degrees of complexity were nothing to worry about. But one has to wonder if the CFA bothered to take a look at the cash position of TSLA
Zacks Investment Research has a great tool that can help give a quick reality check on the situation. Research Wizard can help me chart tons of data points that CFA’s and non-CFA’s alike can learn from.
At the time when Thompson opined on the likely bankruptcy for TSLA, he would have seen a cash position of $3.5B – and that number has not slipped to $0 as the bears would have you believe. Instead, the cash position fell to $2.7B in the most recent quarter.
Simple math tells you that they burn rate was $800M in the quarter. That is a lot! But one has to wonder, where did it all go? Maybe it was building out a Gigafactory or making some cars or something like that…
Now I am not suggesting that the $27B in assets should be the reason you buy the stock, I am just suggesting that the probability of a bankruptcy in the company months is awfully far-fetched.
Beyond Bankruptcy
The two charts of total cash and assets may serve to disprove the thesis that bankruptcy is imminent, but there has been a chart that I am seeing more and more lately.
The last few times I have stepped up to present the bull case for TSLA I have seen this type of chart come back at me. It is hard to take this sort of thing as anything short of condescending… giving me a “pro tip” – but the author isn’t a CFA. In fact, I do have to admit he is a better blogger than me but is where it stops.
The idea that this short (if the blogger actually has any skin in the game) presents is that ever increasing losses are a bad thing. And that is true, but investors tend to buy stocks based on what they WILL do, not what they have done. This is a pretty basic premise that most investors understand, but for those that don’t I just gave you a real “pro tip.”
We have heard from many shorts that they will remain short until the company is profitable. Well guess what… some covering trades are on the horizon!
Sales Growing
Speaking of looking forward, one key idea is to look at where analysts are expecting future sales to come in.
It stands to reason that increased sales will lead to increased earnings and that is a fundamental driver of the stock market.
Bear of the Day:
Cars.com is a Zacks Rank #5 (Strong Sell) and that makes it eligible for the Bear of the Day article. I felt it was good one to run against the Tesla (TSLA - Free Report) Bull of the Day.
So why is Cars.com a Zacks Rank #5? The quick and easy answer is that earnings estimates have been falling. The Zacks Consensus Estimate has dropped from $2.61 to $2.14 over the last 30 days. The Zacks Consensus Estimate for 2019 has also slipped. It moved from $2.94 to $2.45 over the same time period.
Earnings Miss
I see that Cars.com missed the mark in a big way in the most recent earnings release. The company reported $0.39 but the Zacks Consensus Estimate was looking for $0.64. That is a miss of $0.25 or just a little over 39% under expectations.
Following the miss, analysts took estimates down for this year and next year as well.
Recent M&A Rumor
On May 31 there was an article in the NY Post that said the company hired JPMorgan to help sell the company. This may or may not be true, but the simple fact is once a rumor like this hits the press it isn't going away until the company comes out and says that it is not for sale.
There are several other names in the auto space that are just as interesting as Cars.com.
Additional content:
Ambarella Posts Q1 Earnings Beat, Sluggish Revenue Guidance
Ambarella, Inc. just released its latest quarterly financial results, posting adjusted earnings of $0.13 per share and revenues of $56.9 million.
Currently, AMBA is a Zacks Rank #3 (Hold), but that could change based on today’s results. Shares of the company have dipped slightly over the past month, including a 0.3% loss during regular trading hours today.
The stock is currently up 2.1% to $50.41 per share in after-hours trading shortly after its earnings report was released.
Ambarella:
Beat earnings estimates. The company posted non-GAAP earnings of $0.13 per share, beating the Zacks Consensus Estimate of $0.09. Investors should note that this consensus projection has remained stagnant over the duration of the quarter.
Beat revenue estimates. The company saw revenue figures of $56.9 million, just edging out our consensus estimate of $56.23 million. Total revenue was down 11.2% year over year.
Gross margin on a non-GAAP basis was 61.8%, down from 64.3% in the year-ago period. GAAP gross margin was 61.3%, down from 63.9% last year.
GAAP net loss in the quarter was $10.0 million, or $0.30 per share. That compares to GAAP net income of $2.6 million, or $0.07 per share, in the prior-year period.
“We continue to successfully achieve our target milestones in the rollout of our new computer vision technology,” said CEO Fermi Wang. “We are encouraged by the feedback received by customers in the security and automotive markets and believe that our investment in computer vision technology will bring new opportunities for growth.”
Ambarella expects Q2 revenue to fall in the range of $60.0 million to $64.0 million. Prior to today’s report, our latest consensus estimate was calling for Q2 revenue of $68.8 million.
Get today’s Zacks #1 Stock of the Day with your free subscription to Profit from the Pros newsletter:
About the Bull and Bear of the Day
Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.