Tesla (NASDAQ: TSLA) stock came very close to a two-year low on Wednesday. After crashing by more than half over the past year, have shares in Elon Musk’s carmaker fallen too far, too fast?
Tesla stock tumbles
As I write on Thursday afternoon, before the US stock market opens, Tesla stock stands at Wednesday’s close of $177.59. Earlier yesterday, this hugely popular and widely traded share hit a two-year low of $177.12, before rebounding slightly.
Sadly for fans of the world’s richest person and his electric-car firm, this has reduced Tesla’s market capitalisation to $560.8bn. This relegates the business to sixth place among US mega-cap stocks — below Warren Buffett’s Berkshire Hathaway, in which my wife recently invested.
At its 52-week high, Tesla stock closed at $402.67 on 4 January — the very day that the US S&P 500 index hit its record high. Since then, it’s been pretty much all downhill for this one-time tech ‘wonder stock’. Over the past 12 months, Tesla shares have lost over half their value and are down a whopping 60% from their 4 November 2021 high. Yikes.
I love Tesla as a carmaker
Where I live (a small, upmarket city in the south of England), Tesla cars are springing up everywhere. Typically, I will see at least four on a short walk around my neighbourhood. Indeed, the car park of my local Sainsbury’s supermarket seems to be filling up with Tesla models.
While I love the car, I cannot say the same about Tesla as a corporation. Throughout 2021/22, I’ve repeatedly decided against buying Tesla stock at ever-lower prices. In my view, this company’s equity was far too expensive when set alongside the shares of other large-cap firms.
Tesla stock still looks pricey to me
At the current share price, Tesla stock trades on a sky-high price-to-earnings ratio of 54.7. This translates into a tiny earnings yield of just over 1.8% a year. Why on earth would I buy into Elon Musk’s vision at this elevated level, when I can buy cheap UK shares offering 10 times this earnings yield?
Of course, the answer is that Tesla stock is priced as a go-go growth share, with investors expecting many years of earnings growth. Indeed, some pundits expect Tesla to soar up the league of global carmakers by sales. It currently hovers around 20th place, or thereabouts.
Musk’s Twitter buy worries me
I don’t own Tesla stock and I won’t be buying it anytime soon. The simple reason for this is that I am a veteran value investor. Rather than buying into growth companies at nosebleed valuations, I prefer to park my cash in companies with high earnings yields and dividend payments. As Tesla doesn’t meet my bill, I shall again pass over this latest opportunity to buy shares.
Finally, I am a big sceptic of Elon Musk’s decision to buy Twitter for $44bn. To me, Musk now has his hands full turning around the social-media platform — leaving less time to manage Tesla’s operations. Of course, I could be wrong; the carmaker’s revenues and earnings could rise strongly in 2023. But I fear that soaring inflation, crippling energy and fuel bills, and rising interest rates will crush corporate profitability next year!
Cliffdarcy has an economic interest in Berkshire Hathaway shares. The Motley Fool UK has recommended Sainsbury (J). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2022