Source: PaxForex Premium Analytics Portal, Fundamental Insight
Last year witnessed Tesla once again solidifying its status as a favorite among investors, with a remarkable 102% surge in its stock value, outpacing the broader Nasdaq Composite. As we turn our attention to 2024, the question on investors' minds is whether it's too late to acquire Tesla shares, given its extraordinary 2,280% return over the past decade.
The electric vehicle (EV) giant's appeal as a buy is under scrutiny, particularly in the face of higher interest rates and inflationary pressures that have adversely affected various industries, including automakers. The automotive sector, in particular, may face heightened challenges due to increased borrowing costs, rendering cars less affordable for consumers.
Responding to this, Elon Musk implemented significant price cuts last year to stimulate demand and safeguard Tesla's market share. While unit delivery volume remained robust, the company experienced a notable dent in profitability. In the third quarter of the previous year, Tesla reported a substantial decline in gross margin (17.9%) and operating margin (7.6%) compared to the same period a year ago—a concerning trend for shareholders.
Compounding these challenges, Tesla is grappling with a marked deceleration in its growth trajectory. The third quarter saw a mere 9% increase in revenue, a significant departure from the robust growth witnessed in preceding years. The uncertain economic landscape adds an additional layer of complexity, making the near-term outlook for the company particularly challenging.
Despite recent challenges, taking a step back and focusing on the broader perspective reveals compelling reasons to appreciate Tesla. The company boasts an economic moat, providing a protective barrier against competitors. Key contributors to this moat include Tesla's formidable brand, recognized for premium, high-quality, and technologically advanced vehicles that consumers are willing to pay a premium for. Additionally, Tesla has nurtured a cost advantage through substantial investments in manufacturing capabilities over the years, enhancing its competitive position.
These favorable attributes increase the likelihood of Tesla's sustained success over the next decade. The company's ambitious long-term goals, centered around full self-driving capabilities and artificial intelligence, further contribute to its attractiveness. The potential introduction of autonomous software, leading to a global fleet of robotaxis, could significantly boost revenue and earnings in the future.
Tesla is undeniably a quality business, holding a market leadership position in a rapidly growing industry, backed by a robust brand and superior profit margins compared to traditional rivals. Moreover, the prospect of a future autonomous robotaxi fleet adds an extra dimension of potential growth.
However, the enthusiasm for Tesla's stock should be tempered by a careful consideration of the current valuation. The price-to-earnings (P/E) ratio, standing at 75 as of this writing, is notably high. This is particularly concerning for a company with a $733 billion market capitalization and entering a more mature stage in its lifecycle. Over the past 12 months, Tesla's P/E multiple has surged by 127%, reflecting an improvement in investor sentiment that has propelled recent returns.
This suggests that Tesla's stock may be currently priced for perfection, diminishing the likelihood of achieving market-beating returns in the future. Investors who have confidence in the company should exercise patience and wait for a more favorable entry price before considering buying the stock.
As long as the price is below 227.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 217.64
- Take Profit 1: 210.00
- Take Profit 2: 200.00
Alternative scenario:
If the level of 227.00 is broken-out , follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 227.00
- Take Profit 1: 235.00
- Take Profit 2: 245.00
