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Is Tesla A Buy In 2022 After Slipping Into Bear Territory?

Published 12/17/2021, 03:20 AM
Updated 09/02/2020, 02:05 AM

Buying Tesla (NASDAQ:TSLA) shares has been a very profitable trade when it goes through a major correction. As we say farewell to 2021, the world’s largest car-maker by value, is presenting a similar risk-reward preposition.

Tesla stock, after falling more than 20% since reaching a record high in early November, is in a bearish spell. With that steep slide, the electric car-maker’s market valuation fell under $1 trillion.

Tesla shares closed Thursday at $926.92, with December shaping up to be the stock’s worst month since March 2020. The stock is also down more than 21% from its record closing high of $1,229.91 on Nov. 4, signalling a bear market, which is defined as a decline of at least 20% from a peak.

Tesla Weekly Chart.

But long-term investors in Tesla stock are used to these ups and downs, which are often prompted by CEO Elon Musk himself. The latest bout of selling pressure started after Musk publicly announced he would sell 10% of his stake in the company after conducting a Twitter poll. Since then, he has sold a total of $12.7 billion worth of stock over a five-week period.

Tesla’s extreme volatility, without any fundamental catalyst, highlights the dilemma that many long-term investors who are averse to extreme moves, face. Even after the recent plunge, Tesla stock is still up 36% in 2021, after surging more than eightfold the year before.

Another 20% Downside

After this stunning rally, it’s hard to recommend this stock from a fundamental standpoint. Tesla is, no doubt, dominating the electric-vehicle market and its lead would be hard to surmount, but its stock is trading at extremely elevated multiples.

According to InvestingPro analysis, Tesla stock is trading at a 12-month price-to-earning multiple of 279, a level that has set the performance bar so high that there is no space for the car-maker to make any error when it comes to financial performance.

Due to this extremely rich valuation, Tesla’s stock could be a risky bet based on InvestingPro’s model, which assigns Tesla $743.35 a share fair value, 22% downside risk from the current level.

That being said, any pullback in Tesla shares has proven to be a lucrative trade for buyers on a dip. According to Morgan Stanley’s Adam Jonas, Tesla will remain the leader in EV manufacturing, batteries and autonomy in the foreseeable future, making it a suitable candidate for long-term investors.

His recent note stated:

“We look ahead to FY22 with expectations of strong automotive profitability, but increasingly difficult comps and potential narrative changes that may challenge conventional expectations about the EV strategy. If you must own stocks in this industry, please be very selective.”

About Tesla, Jonas added:

“Embedded within the company is a fast-growing, high-margin software business that has the potential for highly recurring revenues from its connected car software and services business.”

Wedbush Securities, one of the most bullish forecasters on Tesla, gave a new $1,400 price target to the stock, saying the company could win half of what is set to be a $5-trillion EV market.

According to analyst Dan Ives, Telsa should benefit from both President Joe Biden’s $550-billion infrastructure bill, which is set to boost the country’s electric vehicle industry, as well as improving demand in China.

His note added:

“This green tidal wave will result in a $5-trillion market opportunity over the next decade, with Tesla leading the way.”

Bottom Line

Tesla stock will likely remain volatile in 2022, given a high level of speculative interest in this name. That said, investors could take advantage of any pullback that takes its shares closer to their fundamental value, like the one calculated by the InvestingPro models.

Latest comments

My average is $50 post split. Im up higher than any other stock by far. I’ll never sell and Tsla is leading the way. No one wants to own any other electric car I assure you.
Nope… its just the beginning of chaos
No to any meme stock and Tesla is the original meme stonk
I personally believe alot of company are converting to solar energy in 2022! so I'm going to have to say no
one word (P/E 250xs)
Nobody uses trailing 12 months p/e to value a hyper-growth company. Stick with value stocks growing only 2% YoY bro.
Elon Musk will be the next president of the US. so yes, donate more to him
He can't he was born is South Africa, Only natural born US citizens can run for president, its in the constitution.
What about Obummer? Didnt apply then?
Obama was born in Hawaii to a US citizen mother.
Tesla is a buy at $50 a share
If you say so, it means we reached the bottom :)
Now we shoudnot buy tesla anymore
I can't believe TESLA is finaly trading back to its intrinsic value.
Tesla is easily more valuable than apple or Amazon in next 5 years, anyone who says otherwise is a dinosaur or bot
I think you are underestimating all the competition catching up, or you believe that who has one ICE is going to buy 5 EVs. You live in lalaland
Tesla is the market leader in EV no doubt. But it still has a max production capacity (as Musk keeps saying it's not about demand and all about supply for the next few years for Tesla - and by then - a lot of other companies will have eaten into its first-mover advantage). Ford / VW / GM etc are all rapidly investing in EV research to catch up and have the manufacturing facilities already in place to ramp up production. Once more options are on the market it will also eat into Tesla profit margins.  Tesla is also VERY reliant on the Chinese market for profits so any trade war here and.. Despite the recent dip It is still trading at a PE Ratio of 300 versus Ford (28) GM (7) and VW (5)...even versus Apple (30) Nvidia (87) and Amazon (66) which are all % of the Tesla overvaluation.....I have Tesla in my pension funds and I like it long-term etc but wouldn't buy direct shares unless drops below $400 / PE Ratio of under 100.
SO you're an anlyst and you're actually saying that a "fundamenta based" value for tesla is close to 200 forward PE. You should be all persecuted for fraud
Agree. P/E of less than 5 is a safe investment. What’s going on at the market atm is absolute insanity.
 Depends on the industry and potential. A lot of shares are currently 35-40% above their long-term averages and very few will maintain 2020 and 2021 sales levels once Fed printing presses are switched off. But VERY few 'good' shares are trading at a PE ratio 5 unless bought for the high dividend yields. Technology generally trades at a PE ratio of 15-45 and the car industry is 5-30 etc. So 300 for Tesla is ?? (regardless if you see it as a Tech company or a car manufacturing company - still highly overvalued)
Nobody uses the TTM p/e to value a hyper-growth company.
Analysts surely are running out of ideas as to what to say about Tesla , guys tesla stock is not based any production , delievery na… Tesla is a metaverse stock , it is backed by people’s faith , the reason why it is down is because of profit withdrawals , it will definetly become A huge buy in january !… $7k is thd next High!!
Oracles like you also predicted bitcoin at 100k by the end of this year. Many are still waiting and dreaming about becoming millionaires. Some will become millionaires, most of whom are now billionaires perhaps.
$7,000 a share? You think its a stock worth $$7 TRILLION? Which is more than the whole EV industry value for the next 8 years combined (EV sales are projected to be about $800 Billion a year by 2030). Plus more than the whole GDP of every country on this planet apart from the USA and China....I don't know what you have been smoking but can I have some? ;)
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