Tesla (NASDAQ: TSLA) stock has experienced an explosive move higher in recent weeks. Since 21 April, it has surged nearly 50%.
At today’s share price of $330, the stock looks dangerously overvalued, in my view. Here’s a look at why investors need to be careful with this growth stock right now.
Why the share price has soared
There are two main reasons Tesla’s share price has soared recently.
One is that CEO Elon Musk has said that he will be focusing on the company more going forward. Earlier this year, he was spending a lot of time on DOGE (the US Department of Government Efficiency).
The other is that investors are excited about the robotaxi potential. It’s worth noting here that in an interview with CNBC earlier this week, Musk said that Tesla could have up to a million robotaxis on the road by the end of 2026.
A sky-high valuation
These are both positives and should lead to revenue growth in the long run. But I don’t think they support the sky-high valuation Tesla stock commands today.
This year, analysts expect Tesla to generate earnings of just $1.92 per share. So, at a share price of $330, the company is trading on a forward-looking price-to-earnings (P/E) ratio of about 172.
That valuation looks a little off, to my mind. For reference, Nvidia – which is spearheading the AI revolution – currently trades on a forward-looking P/E ratio of about 30.
Business performance is weak
The valuation becomes more questionable when we look at Tesla’s recent business performance.
Right now, Tesla’s sales across Europe (which represent about 20% of group sales) are tanking. For April, sales were down 81% year on year in Sweden, down 59% in France, and down 33% in Portugal.
Meanwhile, analysts don’t expect any top- or bottom-line growth in 2025. Currently, revenue is expected to be flat this year while earnings per share are forecast to drop about 10% year on year.
The fact that the valuation is sky-high while business performance is weak indicates that there’s a disconnect between the fundamentals and the share price, in my view. I don’t believe the current share price is justified.
Is the stock overbought?
One other thing worth highlighting is Tesla’s relative strength index (RSI). RSI is a technical analysis indicator that can signal when a stock is ‘overbought’ or ‘oversold’.
Currently, Tesla has an RSI of about 68. A reading near 70 typically indicates that a stock is in overbought territory (meaning that it could experience a pullback).
I’m avoiding this stock
Now, it’s worth pointing out that Tesla has never really traded on fundamentals. This is a stock that tends to trade on its future prospects, which continue to be exciting.
I believe the share price is too high right now, however. At current levels, I’ll be avoiding the stock due to the high level of risk and I think other investors should consider avoiding it too.
