Source: PaxForex Premium Analytics Portal, Fundamental Insight
Over the past few months, Tesla stock has lost about 30% of its value. Over the course of the year, they have fallen more than 40 percent. The share price pullback has probably made many investors wonder whether now is the right time to buy the electric car maker's stock. After all, even though the stock has fallen, the company's core business is growing rapidly. Perhaps Tesla's fundamentals have recently caught up with its stock price.
Is growth stock valuation attractive after a sharp pullback, or is the stock premium still too high? Let's dig deeper to find out.
The world may be facing severe macroeconomic uncertainty, but you wouldn't know it by looking at Tesla's recent results. Q3 revenues were up 56% YoY, and free cash flow for the period was up 148% to about $3.3 billion. In addition, the company's cash flow rose to $21.1 billion.
The third quarter was outstanding. Record revenue. Record operating profit. Record free cash flow.
The strong quarter, of course, was fueled by a surge in Tesla vehicle deliveries. Total Q3 deliveries were up 42% year over year to 343,830 units.
If you think this quarter was a fluke, think again. The company's performance has remained steady even as the scale has declined. Tesla expects full-year production to grow 50% over 2021. Delivery growth is expected to be "just under 50%," Tesla Chief Financial Officer Zachary Kirkhorn said during the company's Q3 earnings call.
As for Q4 specifically, Tesla CEO Elon Musk hinted during the call that vehicle order levels remain high. "I can't stress enough that we have excellent demand for the fourth quarter, and we expect to sell all the cars we produce as far into the future as we can see," Musk explained. "So the plants are running at full speed..."
Clearly, Tesla is doing well - especially compared to the rest of the auto industry. A report from Cox Automotive, a marketing and software company for auto dealers, predicts that U.S. auto sales will fall about 9 percent this year. Global trends are expected to be just as bad, if not worse.
Tesla's strong performance in a difficult environment underscores the automaker's momentum and the strong secular tailwind of demand for all-electric cars. All that said, the stock's decline is a good time to consider it. Sure, Tesla's price-to-earnings ratio of about 61 as of this writing may seem overstated at first glance. But when investors consider the company's strong momentum and management's optimistic outlook, the valuation starts to look more attractive.
However, investors who choose to buy Tesla stock should do so in moderation. When the stock trades at inflated valuations, a slight deterioration in Wall Street's long-term outlook for the company can have a dramatic and sudden negative impact on the stock price. Therefore, any investor buying stocks should consider making these stocks a very small percentage of their overall portfolio.
As long as the price is below 191.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 182.20
- Take Profit 1: 176.00
- Take Profit 2: 165.00
Alternative scenario:
If the 191.00 level is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 191.00
- Take Profit 1: 200.00
- Take Profit 2: 207.00
