Tesla Stock Is Up Because It Always Rises Before Earnings. What Happens Next?

There has been one upgrade of the stock this week. That certainly helps. But the simpler explanation for the recent rally is that Tesla stock always seems to rise going into earnings.

Over the past eight quarters, Tesla stock has risen six out of eight times between the end of the quarter and the actual report. What’s more, the average gain is about 6%. Not too bad.

The reason isn’t always tied to rising or falling analyst estimates. Sometimes analysts’ earnings estimates are rising going into a quarter. Other times they have been falling.

Investors, however, have come to expect good things on quarterly earnings reports. Tesla, before fourth-quarter numbers were reported in January, had smashed analysts estimates for five straight quarters. The world for Tesla investors, frankly, changed in October 2019. That was the first quarter in the company’s string of big “beats.” Tesla reported a surprise profit. The company, and the stock, haven’t looked back since.

After Tesla reports is another story, though. The stock has fallen in six of the past eight quarters in the week following the earnings report. Still, the drops are typically small. What’s more, the average move is actually positive, since a couple of the post-earnings rises were outsized. For example, Tesla stock rose more than 25% the week following the October 2019 beat.

Investors seem to get a little too excited for Tesla earnings. A stock drop might be expected again this time. But based on recent history, the slide won’t be as bad as the pre-earnings gains are good.

Tesla is reporting first-quarter earnings on April 26 after the market closes for trading.

Write to Al Root at [email protected]