Tesla (NASDAQ:TSLA) stock slumped in 2022. The Elon Musk EV venture is down a whopping 68% over 12 months — those are some big losses.
But as most investors steer clear of the faltering firm, star stock-picker Cathie Wood continues to buy more for her Ark portfolio.
In fact, Wood appears to have bought Tesla stock five times for ARKK ETF since December 21. The largest deal was on Tuesday when she bought shares worth more than $19m, based on their closing price of $108.10 the same day.
So should I be buying Tesla shares in the dip like Wood — the ‘best’ investor of 2020 — or should I follow the crowd?
A fall from grace
There were points during the last year when Tesla appeared to be defying the market, staying strong while growth stocks collapsed all around it.
I’m sure a part of that was due to Musk’s popular following and their belief in his growth plan. Wood has been a part of that fan club, claiming that Tesla will be in “pole position to dominate” the EV market when the transition truly gets going.
However, Tesla’s collapse eventually came. In early September, Tesla shares were priced at over $300. Today, they’re worth just over $100.
The collapses has been influenced by several factors, including Musk selling Tesla shares to finance a Twitter take-over, Tesla missing delivery targets, and concerns about margins.
Valuation
Despite this mammoth fall in the share price, Tesla still doesn’t look that cheap. The company’s current price-to-earnings (P/E) ratio (TTM) is 30.5. And it’s price-to-sales ratio (5.3) is someway above its non-US peers.
But these figures aren’t entirely illuminating, and neither is a discounted cash flow calculation. And that’s because forecasting what Tesla’s earning will look like going forward is getting difficult.
Growth is slow and margins are coming under pressure. That’s very concerning for investors and it makes the above calculations slightly meaningless.
I’m following the crowd
There are several reasons I’m not buying Tesla shares. To start with, valuing the firm is very difficult. And while it is clearly the sector leader, it’s market-cap is around 10 times greater than its fast-growing Chinese peers.
In fact, its valuation dwarfs that of any other car company, despite the share price correction, and that concerns me. For one, I find this hard to accept as I’m not convinced it will become the biggest car-producing company in the world.
Another concern is around slowing growth. The firm missed forecasts for the fourth quarter of 2022, notching 405,000 deliveries, compared with an estimated 430,000.
And with price cuts in the US and extended sales incentives in China, margins are likely to come under substantial pressure. Supply side cost inflation has already proved challenging for most EV firms, especially with the price of lithium batteries soaring.
