Tesla (NASDAQ: TSLA) remains one of the most popular stocks in the UK. Last week, for example, it was the seventh most bought stock on Hargreaves Lansdown.
Would I buy the growth stock if I had £5k to invest today? Let’s discuss.
Poor Q2 results
Tesla’s Q2 results, posted earlier this week, were pretty poor. For the quarter (ended 30 June), automotive revenues were down 7% year on year to $19.9bn, total revenue was up 2% to $25.5bn, while non-GAAP earnings per share were down 43% to $0.52.
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So clearly, the electric vehicle (EV) growth story here stalled.
More than an EV company
The thing is though, if I was to buy the US-listed stock, it wouldn’t be for the EVs. That’s because Tesla’s much more than an EV company today.
Instead, I’d be buying for the company’s autonomous driving technology and the potential for ‘robo-taxis’. I reckon that in 10 years’ time, robo-taxis could be a genuine transportation option and I want to invest in the growth story early.
Now, robo-taxis were a major topic on Tesla’s Q2 earnings call. CEO Elon Musk sees a world in which Tesla owners can authorise their vehicles to be used as part of a ride-hailing service, with the cars driving themselves.
That sounds exciting. Musk reckons that Tesla could have robo-taxis on the road as soon as next year.
However, it’s worth pointing out that the visionary CEO has a history of over-promising and under-delivering when it comes to timelines (he’s already pushed the first robo-taxi event back a few months). So I’m taking this particular timeline with a grain of salt.
Would I buy now?
But let’s say that Tesla’s going to have robo-taxis on the road at some stage in the future. The key question is – would I want to pay the current price for the stock?
At today’s share price of $216, the forward-looking price-to-earnings (P/E) ratio here is 84 (the consensus earnings per share forecast for 2024 is $2.57). That’s a very high valuation.
Personally, I’m not convinced that valuation makes sense right now.
After all, there’s no guarantee that Tesla will turn out to be the leader in the robo-taxi space. Other companies experimenting with this technology include Uber and Alphabet (both of which I’m invested in) and these companies already have robo-taxis on the road in the US.
I could probably justify a P/E ratio of 40 for Tesla. Maybe even 50 if I was feeling bullish. But at an earnings multiple of 84, the risk/reward setup isn’t so favourable, to my mind. At that multiple, I think there’s potential for share price weakness in the near term.
So I’d pass on Tesla stock if I had money to invest today and instead focus on other opportunities. All things considered, I think there are better opportunities in the market.
