After Tesla stock crashes 34%, is it time to buy?

Tesla stock has crashed from almost $1,245 in November to around $820 today. After losing $420bn of market value, is it time to buy TSLA at a deep discount?

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For Tesla (NASDAQ: TSLA) shareholders, the past 12 months have been a wild roller-coaster ride. In 2021-22, Tesla stock has slumped then jumped, dived then soared, and recently crashed spectacularly. For lovers of extreme volatility, TSLA is probably the best S&P 500 stock to own today!

Tesla is an amazing business

For years, I’ve been enchanted by three things about Tesla. First, its marvellous vehicles, which are like no other I’ve ever ridden in. Second, by the company’s magnificent ambition to disrupt and discard fossil-fuel motoring. And third, by the mercurial and unpredictable behaviour and passionate pronouncements of its genius leader, Elon Musk.

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However, experience shows that being early adopters or innovative disrupters of established industries is often accompanied by highly volatile and turbulent stock prices. That’s certainly the case with Tesla, whose shares soar and plummet in dizzying fashion. Hence, since mid-2019, I’ve been fascinated by the wild gyrations of the Tesla stock price.

Tesla stock oscillates wildly

Since 2018, owning Tesla stock has been astonishingly profitable. On 31 December 2018, TSLA ended the year at $66.56. But then the shares collapsed, hitting their 2019 intra-day low of $35.40 on 3 June 2019. However, they then rebounded strongly, reaching their 2019 intra-day high of $87.06 on 27 December. They then closed out 2019 at $83.67, for a one-year return of 30.8%. But this was tame compared with what was to come.

During the Covid-19 crisis that began in early 2020, Tesla became the ultimate large-cap meme stock. Many Tesla fans were convinced that the firm was destined to become the world’s leading carmaker. As a result, Tesla stock soared, driven sky-high by buying pressure and energetic options trading. But after soaring to an intra-day high of $193.80 on 4 February 2020, the Tesla share price then collapsed, crashing as low as $70.10 on 18 March. But then, like one of Musk’s SpaceX rockets, the stock went stratospheric. By the end of 2020, it hit a record high of $718.72, before easing off to end 2020 at $705.67.

Tesla stock continued to set new records in 2021. After surging to fresh highs in early 2021, the stock fell back to close at $563.46 on 19 May. But Tesla’s hyper-growth phase was not yet over. Yet again, it raced upwards, spiking to an all-time high of $1243.49 on 4 November, before easing to a closing high of $1,229.91.

Would I buy Tesla now?

At its peak, Tesla’s market value neared $1.25trn. Not bad for a company making less than 1% of the world’s total car output. The day before, on 3 November, I said, “the Tesla stock price was madness”. I added, “It seems obvious to me as a veteran value investor that TSLA is hugely, mind-bendingly overvalued”. As I write, the Tesla stock price is $820.14, having crashed more than a third (-34%) since its 4 November high. So is Tesla on my buy list now?

Today, Tesla is valued at $832.3bn. That’s a colossal price tag for a minor — yet hugely disruptive — automobile manufacturer. But the futuristic nature of Tesla’s products — and the fanatical worship of its leader — almost make Tesla a ‘cult company’. And, as we all know, cults are built on faith, not financial fundamentals. Speaking of fundamentals, Tesla stock trades on around 175 times earnings, offering a tiny earnings yield of 0.57% and no dividend. As an old-school value investor, I won’t buy Tesla at these heights. But I’ve no doubt that faithful fans will keep buying at these levels. And what if Tesla does become #1? I could be wrong!

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. 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.

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