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Last year was brutal for tesla (NAZDAQ: TSLA), which fell 65%. It is now down 75% from its peak in November 2021.
It marks another turbulent year for Tesla founder and CEO Elon Musk, who has now suffered the biggest financial loss in history. His personal fortune, mostly in Tesla stock, fell by an estimated $182 billion.
the great divide
Inevitably, investors now split into two camps. Those who think Tesla has fallen into a ditch when Musk is distracted by his $44 billion purchase on Twitter, and a stalwart loyalist who sees this as a great opportunity to buy his stock on the cheap.
Tesla’s valuation is much more enticing than it was. Its price-earnings (P/E) ratio topped a staggering 1,274 in December 2020. Today’s 12-month P/E looks dirt cheap compared to 21.38 times earnings. However, that’s still more than four times General Motors’ current earnings of 5.18 times, while Ford’s is at 5.81 times.
Old-school motor manufacturers are also eating up Tesla’s share of the electric vehicle (EV) market. Others fear the EV revolution may stall soon, with sales slumping as charging networks fail to keep up and driver frustrations mount.
Higher lithium costs won’t help. Neither will the risk of future Covid lockdowns in China, as the country is a big market for Tesla. The IMF forecasts that a third of the world will fall into recession this year, further complicating matters. Then there’s the whole furor of Twitter, which has become politically venomous and a distraction for Musk.
Let’s not forget that Tesla is profitable, with third-quarter revenue of $21.45 billion and net income of $3.3 billion, buoyed by energy storage and regulatory credit revenue.
it’s still electric
Personally, I love buying the best stocks that have fallen out of favor and are trading at much lower valuations as a result. My concern is that Tesla was so overvalued that it now looks cheaper than it really is. Just because the stock has fallen from $415 to $100 doesn’t mean it can’t fall back to $50.
The stock price is up about 15% year to date, which will tempt some. But I’m careful, as this could be a “dead cat bounce”.
Once the US Federal Reserve pivots on interest rates, growth stocks like Tesla should turn favorable again. However, I don’t expect a return to the glory days of American technology. Interest rates will probably never be this low again, nor will the stimulus be this high, nor will investors be this gullible. Tesla has to tackle much more difficult terrain today.
However, I find it difficult to bet against Elon Musk. The man is some kind of genius, even if his harshest critics say otherwise. I would like to buy Tesla stock, but I won’t at this time.
The problem is that I can’t get a clear idea of where it goes next. It could easily fall further, at least until the Fed reverses course and investor animal spirits return. I plan to give it a few months before adding it to my portfolio.
