After a stellar 2023 performance, shares of Tesla (NASDAQ: TSLA) have experienced a noteworthy decline of more than 13% over the past month, from $242.55 to $208.11 as of October 27.
The primary factors behind this dip are a disappointing latest earnings report and the broader tech sector’s struggle amid challenging macroeconomic conditions.
Despite these evident headwinds, Tesla remains the world’s largest automaker by market capitalization and is unrivaled in the realm of electric vehicles (EVs).
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Consequently, analysts and investors find themselves at odds, debating whether the best time to invest in Tesla stock lies in the past or if it’s merely the beginning of a new chapter.
Declining profits
The primary and most recent argument some investors are steering clear of TSLA stock for now is the evident decline in the company’s profits.
As a result of a series of aggressive price cuts imposed throughout 2023, Tesla’s profitability came under substantial pressure, with the company reporting adjusted earnings per share (EPS) of 66 cents in Q3 2023, below analysts’ estimates.
The non-adjusted net income in the period came in at $1.85 billion, while total profit plunged around 22% year-over-year (YoY).
Q3 revenue of $23.35 also fell short of Wall Street’s projections. It was the first time the EV giant missed both EPS and revenue expectations since 2019.
The company’s operating margin, which is considered another key profitability gauge, fell notably from 17.2% to 7.6% in the third quarter.
‘Ridiculously overvalued’
One of the key arguments bears hold when it comes to Tesla is the company’s market valuation.
Well-known American investment manager and famous short-seller Jim Chanos said last month that Tesla is ‘ridiculously overvalued,’ and is the primary reason why he is short on the EV stock.
And he is not wrong. The carmaker’s price-to-earnings (P/E) ratio, a widely used valuation measure that compares a company’s stock price with its earnings, sits at 66.6x. For comparison, the P/E ratios of Ford Motor (NYSE: F) and GM (NYSE: GM) are currently both 9.9x.
Moreover, Tesla has been selling a product that “doesn’t exist” for seven years, Chanos told Bloomberg on September 14, referring to the company’s praised Full Self-Driving (FSD) effort.
Does it mean it’s too late?
The decision on whether it’s too late to invest in Tesla stock isn’t a straightforward “yes” or “no” as the answer hinges on one’s perspective of Tesla as a company.
While some view Tesla as a conventional car manufacturer, others see it as a future tech behemoth, driven by its AI, autonomous driving, and robotaxis efforts.
That said, if one views Tesla solely as a carmaker, the current valuation, and fundamentals may not look particularly appealing.
However, for those who believe in Tesla’s long-term potential and envision it evolving into a technology powerhouse in the years ahead, the current challenges may appear as only a temporary setback.
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