Should investors be worried that the Tesla CEO is juggling too many responsibilities?
Tesla (TSLA -9.07%) shares have struggled to stay afloat recently owing to broader negative sentiment swaying the stock market and added pressure from CEO Elon Musk’s recent proposal to acquire Twitter (TWTR -3.69%). Musk and the popular social media platform agreed to a deal on April 25 valued at $44 billion.
Following the news, Tesla stock fell more than 10%, indicating a potential sign that shareholders are worried about what Musk’s association with Twitter will mean for the electric vehicle (EV) company moving forward. Consequently, the company’s share price is down almost 20% in the past month, and the stock now carries a market capitalization of $891 billion.
Already responsible for overseeing Tesla and SpaceX, Musk now intends to lead one of the world’s largest social media companies. Should investors be concerned that he has too much on his plate? Although only time will tell, I don’t think we need to worry about the future of Tesla. The latest news triggered an antagonistic view of the stock; however, over the long run, the EV maker won’t be affected.
Tesla delivers time and time again
Even when investors may have expected a subpar outing in the first quarter of 2022 due to COVID-19-related shutdowns at its Shanghai factory, Tesla managed to deliver striking results. The company reported a top and bottom line of $18.8 billion and $3.22/share to start off the year, beating consensus estimates by 5% and 42%, respectively. Vehicle production and deliveries experienced 69% and 68% growth year over year, up to 305,407 and 310,048, respectively.
Over a multi-year time horizon, the company plans to achieve 50% average annual growth in vehicle deliveries. Due largely to supply chain restraints, Tesla’s factories have been operating below capacity, which management noted will also be the case for the remainder of 2022. But given the obstacles it has been consistently able to overcome, investors have no reason to fret over the company’s future operational performance.
In the midst of such spectacular growth, other areas of the business are improving too. The company’s total debt excluding vehicle and energy product financing is below $100 million, and the EV maker continues to make headway in its cash flow generation, producing $2.2 billion in free cash flow to close out the first quarter. While Tesla may be a polarizing stock in the eyes of many investors, it’s quite clear that the world’s most valuable automaker is upgrading its financial position.
Tesla’s valuation is well ahead of the pack
With Tesla trading at 119.1 times earnings today, the bears’ main critique of the company has always been its sky-high valuation. Just to put it into perspective, other automakers like Ford, General Motors, and Toyota carry price-to-earnings multiples of 5.1, 6.6, and 8.4, respectively. This isn’t necessarily a fair one-to-one comparison given that Tesla is a pure-play on electric vehicles, which is a much faster-growing market than the traditional automobile industry. And although these companies have dipped their toes into the EV market, Tesla remains the clear front-runner in the space.
Compared to the top EV competitor Lucid Group (LCID -9.92%), Tesla doesn’t appear as expensive. Lucid Group has a price-to-sales multiple of more than 800 versus Tesla’s 15.4. Again, this is not a great direct comparison provided that Lucid Group is currently expanding its top line at a much faster clip than the Musk-led firm. Nonetheless, Tesla is certainly not a cheap investment today, regardless of how you chalk it up.
Is Tesla a buy today?
Don’t let Elon Musk’s recent moves toward a Twitter acquisition shape your beliefs on Tesla stock — focus on the company’s underlying fundamentals. The electric vehicle market is forecasted to expand at a compound annual growth rate (CAGR) of 18% through 2030, up to $825 billion. Tesla remains the industry’s pacesetter and seems poised to enjoy steady growth in the future.
That said, the stock is trading at a lofty valuation, even after its latest pullback. Investors will need to weigh their options before buying this EV juggernaut, but it wouldn’t be unwise to concentrate on more attractively priced stocks currently available on the market today.
