3 Reasons Tesla's Post-Earnings Hangover Looks Like a Buy

Key Points

• Even though expectations were broadly beaten, Tesla's stock still dropped.
• However, the quick recovery shows the bulls are still very much in control.
• The long-term upside remains intact, and the stock looks ready to continue rallying.

After a big earnings report last Wednesday, shares of Tesla Inc. NASDAQ: TSLA ended last week down 5% from their pre-earnings high. That might sound bearish, but context is everything. The stock had been rallying pretty steadily into Wednesday's report, and had gained 50% since April. So the pullback, especially one that started to reverse before the week even ended, feels more like a reset than a rejection.

That being said, at one point in the immediate aftermath of the earnings release, it looked like things could get ugly. The report showed revenue down almost 12% year-over-year, and it wasn't a blowout beat by any means. But with earnings landing in line at 40 cents per share and margins up compared to Q1, the results came in better than feared.

More importantly, the bears lost momentum almost immediately.

By Friday evening, though, the stock had bounced off a key trendline, the lower edge of a narrowing pennant formation developing since April. This technical pattern, which typically resolves with a breakout, is looking increasingly bullish now that earnings are out of the way and the uptrend remains intact.

The next move could be sharp and directional, and right now, the bulls look better positioned.

Let's look at why this pullback might actually be a solid buy. 

1. Better-Than-Feared Results Set a Solid Foundation

Tesla's headline numbers were far from stellar, but they didn't disappoint either. Revenue still declined, but not by as much as expected, non-GAAP earnings held steady, and vehicle deliveries for Q2 were up on Q1.

Many investors would have been bracing for a disaster, but what they got was something actually quite manageable, even optimistic in parts. Margins improved, deliveries bounced, and the company reiterated that its next-gen affordable EV is still on track for the second half of 2025.

The fear trade that had driven volatility earlier in the year appears to be in the process of being replaced by cautious optimism. With the stock up already in the early part of Monday's session, there's a sense that much of the worst-case scenario is now built into the base case. 

2. Momentum Remains With the Bulls 

Despite the pullback, Tesla remains in a clearly defined uptrend, with its multi-month series of higher lows and higher highs intact. The stock bounced exactly where you'd expect it to last week, on the lower boundary of the narrowing pennant we've been tracking, and rallied through Friday to close well off the post-earnings lows.

In the early part of Monday's session, shares were up close to 4% and edging towards their pre-earnings level. 

This pattern tells us the bulls are not done yet. With the near-term uncertainty around Q2 earnings removed, a breakout towards the $360 mark could soon be in play. Technicals aside, many analysts have remained firmly bullish. 

Wedbush, for example, is holding firm on its $500 price target, with analyst Dan Ives pointing to the company's $1 trillion autonomy opportunity as a key driver of long-term value. The team at Canaccord Genuity Group also came out bullish after last week's report, reiterating its Buy rating and boosting its price target to $333.

3. Robotaxis and the Long Game 

Love or hate him, Tesla's CEO, Elon Musk, still knows how to command attention. Wednesday's report may have lacked fireworks, but Musk's comments on Tesla's autonomy roadmap are worth noting.

He reaffirmed plans for the robotaxi rollout to reach half of the U.S. population by the end of 2025 and hinted at European regulatory progress. For the naysayers out there, these aren't just PR stunts.

Instead, they reflect Tesla's ongoing pivot away from hardware-driven growth and towards a software-and-services model, one with the potential for that much sought-after recurring, high-margin revenue.

Tesla Stock Shakeout Sets the Stage for a Potential Breakout

The sell-off, such as it was, feels like a short-term shakeout. Sure, the price-to-earnings (P/E) ratio is still lofty, sitting north of 180, meaning expectations are still high. But Tesla doesn't need to be perfect to keep moving higher. It just needs to keep progressing, quarter by quarter.

A move back towards $340 is very much on the cards in the coming sessions, and would likely represent a major breakout signal for investors. After all, this is the same stock that rallied 60% after a horrible Q1 report. If that can happen after a miss, imagine what's possible after a beat.