What Could Drive Optimism in Tesla Stock This Week? – Market Realist

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Auto Stocks Had Mixed Performances in the Week Ending May 12 PART 5 OF 5

By John Parker  | May 15, 2017 8:23 am EDT

Tesla stock

In the second week of May, Tesla stock (TSLA) witnessed sharp recovery after falling 1.8% in the previous week. On Friday, the stock closed at $324.81 with ~5.3% weekly gains. Let’s take a closer look at key factors that might be driving these gains.

What Could Drive Optimism in Tesla Stock This Week?

Bullish sentiments

After struggling for the previous six quarters, Tesla stock recovered in 1Q17 and delivered ~5.8% during the quarter. The gains are extending in 2Q17. The company’s stock posted a fresh all-time high near $327.66 on May 2. Tesla’s solid 1Q17 vehicle deliveries and investors’ high expectations from its earnings could be the primary reasons for the rally on Wall Street.

Despite a widening earnings loss in 1Q17, Tesla’s first quarter revenues rose 17% on a quarter-over-quarter basis. Similarly, its consolidated gross profit margins expanded to 24.7% in 1Q17 from 22.1% in 1Q16. Therefore, a continued positive trend in its revenues and profit margins could be the primary reason for recent optimism in Tesla stock.

Note that Tesla’s gross margins are much higher than other legacy automakers (XLY) including General Motors (GM), Ford (F), and Fiat Chrysler (FCAU).

Key technical levels

On the daily stock price chart, its 14-day relative strength index is at 59.5 and gradually moving upward. It shows that momentum is getting stronger. Recent strength in the momentum suggests that Tesla’s stock price can still continue its journey upward going forward. On the upside, an all-time high level near 327.66 could act as an immediate resistance level for the week ahead. On the downside, an immediate horizontal support lies at $314.80.

Visit Market Realist’s Autos page to stay updated on analysis of auto companies’ 1Q17 earnings results.

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