With shares of Tesla (NASDAQ: TSLA) rebounding sharply on Tuesday, rising more than 11% at one point, investors might be wondering if now is a good time to get in on the beaten-down stock.
After all, shares of the automaker are still down more than 30% year to date. And this comes at a time the company is seeing rapid growth in vehicle deliveries and demand that far exceeds supply. Furthermore, the stock’s price-to-earnings (P/E) ratio has plummeted over the past year, making the valuation more attractive.
To see whether shares are attractive today, let’s take a closer look at the growth stock, its valuation, and the underlying business valuation.
Soaring sales and earnings
While shares of Tesla have been pummeled this year, the underlying business is actually doing very well. First-quarter deliveries skyrocketed 68% year over year. This was fueled by an impressive 69% boost in production, an extraordinary achievement considering the global supply constraints automotive companies are facing.
Even more, Tesla has been able to pass on increased costs during this inflationary period with price increases.
Importantly, a big jump in deliveries and recent price hikes for its products are translating to strong financials for the company. Revenue jumped 81% year over year to $18.8 billion, and earnings soared 658% to $3.3 billion. Free cash flow for the quarter was $2.2 billion, up from $619 million in the year-ago quarter.
Tesla is also well positioned for a potential recession. It finished the quarter with $18 billion in cash, cash equivalents, and short-term marketable securities.
Tesla stock valuation: Buy, sell, or hold?
Thanks to the electric car company‘s soaring earnings recently, its P/E has actually come down much faster than its stock price. Today, Tesla has a P/E of just below 100, down about 55% year to date. Furthermore, over the past 12 months, its P/E has fallen 85% even though the stock is actually up 15% over this period.
While a P/E of close to 100 might seem too expensive at first glance, investors should realize that when they buy shares today, they are getting in on a very fast-growing company. Not only does Tesla expect vehicle production to grow 50% this year, but management also expects the company to average 50% annualized growth for the foreseeable future.
And the company’s recent staggering growth during a challenging time for automotive companies gives substance to management’s rosy outlook. In addition, with delivery times for new vehicles about three or more months for most models, there’s clearly plenty of demand for the products.
Sure, Tesla could face some detours this year. With supply chain challenges for the automotive industry persisting during the second quarter, there’s a possibility that the company fails to grow deliveries sequentially. Additionally, there’s no telling where the near-term bottom is for the stock.
But shares are trading low enough to make the odds good that today’s price could seem attractive when investors look back five years from now.
Based on Tesla’s business momentum, these are likely early days for the company. So the stock’s pullback this year could be a great buying opportunity for patient investors.
Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.