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Why Tesla (TSLA) Shares Skidded Tuesday

Tickers in this article: TSLA

NEW YORK (TheStreet) -- Tesla  shares felt the burn after rumors of a voluntary recall associated with vehicle fires ran rampant. CEO Elon Musk has since refuted that there will be a recall issued.

"There's no reason for a recall," Musk said, speaking with CNBC after the bell Tuesday. "If you read the headlines, it sounds like Teslas have a greater propensity to catch fire than other cars."

"Nothing can be further from the truth," he added, citing that the average rate of fires in gasoline cars is one in every 1,300 vehicles compared to Tesla's track record of one for every 8,000.

"We're about five times less likely to have a fire than the average gasoline car," Musk noted.

Shares were 4.8% lower to $137.80 on Tuesday, after Jonathan Geller, president and editor-in-chief of tech publication BGR, tweeted speculation on the possibility of a recall Monday evening.

Safety concerns over Tesla's Model S hurt the carmaker's share price since the first fire was reported in early October. The three reported fires were each caused by collisions or road debris puncturing the vehicle's battery pack.

Writing on the company blog after reports of the initial fire surfaced, Musk said, "For consumers concerned about fire risk, there should be absolutely zero doubt that it is safer to power a car with a battery than a large tank of highly flammable liquid."

Since the beginning of October, shares have skidded 28.8%, barely making a dent in the company's overall 306.4% gain in the year to date.

In post-market trading, shares have recovered 1.3% to $139.58.

TheStreet Ratings team rates Tesla Motors Inc as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate Tesla Motors Inc (TSLA) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for Tesla Motors Inc is currently lower than what is desirable, coming in at 30.44%. Despite the low profit margin, it has increased significantly from the same period last year. Despite the mixed results of the gross profit margin, TSLA's net profit margin of -8.92% significantly underperformed when compared to the industry average.
  • Compared to other companies in the Automobiles industry and the overall market, Tesla Motors Inc's return on equity significantly trails that of both the industry average and the S&P 500.
  • Tesla Motors Inc reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Tesla Motors Inc reported poor results of -$3.70 a share vs. -$2.52 a share in the prior year. This year, the market expects an improvement in earnings (57 cents vs. -$3.70 a share).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 65.3% when compared to the same quarter one year prior, rising from -$110.81 million to -$38.5 million.
  • This stock has increased by 343.15% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in TSLA do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.