Tesla popped on earnings news. Has Elon Musk's EV maker become a buy?

The release of quarterly results sparked a one-day surge in shares of Tesla (NASDAQ:TSLA) last week, as investors brushed aside margin concerns to focus on the company’s ability to execute in a challenging environment. However, the stock’s momentum stalled following the initial earnings pop and Elon Musk’s EV maker remains much closer to the 52-week low it set in May than to the lofty heights it reached late last year.

Given the ongoing macro headwinds, was TSLA’s earnings rally a blip? Or was it a sign that the stock represents a buy based on the long-term prospects for electric vehicles and green energy?

Operating in a Changing Market

Last week, Tesla (TSLA) reported a quarterly profit that breezed by analysts’ expectations. Free cash flow also topped projections, coming in at $619M compared to an analyst estimate of around $500M.

Still, the results came with some cautious notes as well. The company’s automotive margins shrank to 27.9%, down from the 32.9% seen in Q1. The result also came in below the 28.4% seen in the same period last year.

Meanwhile, the company faced production snarls during the quarter amid COVID shutdowns in China. TSLA’s revenue jumped nearly 42% from the previous year, but the figure was considered sluggish for the still fast-growing EV maker.

Even with these caveats, investors mostly focused on the positive. For example, NewEdge Wealth chief investment officer Cameron Dawson praised the company’s execution in a difficult environment and said the results underlined the strong demand for its products.

“Tesla really proved that they are a manufacturing company despite all the distractions and sideshows,” she said in an interview with CNBC. “They are a manufacturing company and a pretty good one.”

Overall, this sentiment led to a rally of nearly 10% on the day after the financial figures were announced. This was part of a general upswing for the stock, as investors went into the quarterly report with an upbeat outlook. The earnings rally marked TSLA’s sixth day of gains in seven sessions.

However, TSLA wasn’t able to capitalize on the earnings report for a sustained post-release run. Shares were stagnant in the couple of sessions following the rally and have dipped almost 4% during Tuesday’s intraday action.

Looking longer-term, TSLA sits at about $775, off a 52-week low of $620.64 reached in May. However, shares are well off their peak of $1,243.49 set last November.

The stock has fallen about 35% in 2022, hurt by a general drift away from more speculative names amid higher interest rates and a cooling economy.

Still, TSLA’s recent showing has generally outperformed the rest of the EV sector. Workhorse (WKHS), Lordstown Motors (RIDE), Rivian Automotive (RIVN), Mullen Automotive (MULN) and Nio (NIO) have all seen steeper year-to-date declines than TSLA.

MULN has been the worst performer in this group, losing 85% of its value during 2022. RIVN has dropped more than 69%.

TSLA has also held up better than some of the legacy automakers who have been aggressively pushing into the EV space. Both Ford (F) and General Motors (GM) have each fallen more than 40% in 2022.

Is TSLA a Buy?

Wall Street generally views Tesla (TSLA) through a bullish lens. Of the 37 analysts surveyed by Seeking Alpha, the stock has garnered 14 Strong Buy recommendations, along with eight Buy ratings.

However, there are a sizable number of skeptics as well. The analyst community includes 10 Hold ratings. Meanwhile, Wall Street also harbors a set of all-out bears on the stock, with four Sell opinions and one Strong Sell recommendation.

Seeking Alpha’s Quant Ratings issue a mixed opinion. The company gets high marks for its execution, but the system of grading quantitative measures sees the stock as dramatically overvalued.

Specifically, the Quant Ratings give TSLA an A+ for profitability, an A for growth and an A- for momentum. However, it receives an F for valuation.

For a closer look at this view of the stock, see a report from Seeking Alpha contributor Steven Fiorillo, who says the firm has proven to be more than an auto company but still faces a “dicey” valuation. To review a more bullish approach, see why fellow SA contributor Envision Research says the market “never learned its Musk lesson.”

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