Tesla’s (NASDAQ: TSLA) share price has surged past $1,000 recently and, as a result, the company now has a market capitalisation of more than $1trn. That puts TSLA in an elite group of ‘mega-cap’ stocks that includes Apple, Microsoft, Amazon, and Alphabet (Google).
In the past, most companies that have hit the $1trn mark have gone on to get much bigger. So is now the time for me to buy Tesla stock? Let’s take a look.
Tesla: the leader in the EV space
There are a number of things I like about Tesla. For starters, it’s the leader in the electric vehicle (EV) space. This market’s only going to get bigger in the years ahead due to concerns over climate change, and Tesla’s well-placed to benefit.
It’s worth noting that the recent issues with sky-high oil prices and fuel shortages is pushing more consumers towards EVs. It’s also worth noting that Tesla just received a massive order (100,000 vehicles) from car rental company Hertz.
Secondly, its self-driving technology is amazing. The technology isn’t perfect yet (last week Tesla was forced to roll back its latest software update) but it’s certainly quite advanced. If Tesla can perfect it (and that’s a big ‘if’), revenues could rocket higher.
Growth investor Cathie Wood, who has a good track record when it comes to forecasting the TSLA share price, believes there’s a 50% chance the company will achieve fully autonomous driving within five years.
Third, the company has a fantastic leader in Elon Musk. He’s a true visionary with a great track record in the technology space.
Should I buy Tesla stock now?
However, I do have some concerns about investing in Tesla stock. My main concern is the valuation. At the current share price, Tesla trades at 22 times sales. That’s high. It’s worth noting that after the recent share price rise, insiders have been selling a large amount of stock.
Indeed, last week, board member Ira Ehrenpreis sold more than $200m worth of Tesla stock after it crossed the $1,000 mark. On the same day, Antonio Gracias, a former Tesla board member whose term expired recently, also filed his planned sale of $610m worth of shares. This suggests to me these insiders see the stock as overvalued right now.
Looking at the other $1trn companies, they all have extremely dominant positions in their industries. Take Alphabet, for example. It’s the leader in online search by a wide margin (90%+ market share globally). Meanwhile, Amazon has a 40% market share in cloud computing.
Tesla is the leader in the EV space right now, however I think it’s unlikely to have a dominant market share in the future due to the fact that there are so many other players in the market. Companies like GM, Ford, Porsche, and Volkswagen are all releasing their own EVs and trying to capture market share. So, to my mind, buying Tesla stock now, above $1,000, is a risky move.
Better stocks to buy?
Given the high valuation, I’m going to keep Tesla stock on my watchlist for now. All things considered, I think there are better growth stocks I could buy today.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Alphabet (C shares), Amazon, and Apple. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Tesla, and Volkswagen AG. The Motley Fool UK has recommended the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. 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.