Electric vehicle manufacturer Tesla (NASDAQ:TSLA) lost a lot of value last year, but TSLA stock has staged a huge comeback in 2023 so far.
So, is it time to jump in and invest in Tesla now? The best strategy is to be patient and wait for a share-price pullback, even if Tesla has a number of exciting growth drivers.
Sure, it’s tempting to just buy Tesla stock right now. Yet, there’s at least one prominent analyst with reservations about Tesla’s current valuation.
In the final analysis, latecomers to the Tesla bull party could end up holding a heavy bag. Therefore, it’s better to be safe than sorry.
Tesla’s Best-selling EV and Long-term Auto Loans
I’m certainly not suggesting that Tesla, as a company, is going to crash and burn. The long-term bull thesis for TSLA stock remains intact. After all, as they say, the numbers don’t lie.
I’m referring to the vehicle-sales numbers for Tesla’s popular Model Y vehicle model. Year-to-date through May, believe it or not, the world’s best-selling car wasn’t Toyota Motor’s (NYSE:TM) Corolla.
Rather, the number-one spot went to the Model Y, with around 428,000 units sold. The Corolla took second place, with roughly 411,000 units sold during that time.
Furthermore, to help Tesla maintain it’s incredible momentum, the company is making a smart move to help keep its vehicles as affordable as possible. I’m not referring to Tesla’s EV price cuts but to the automaker’s introduction of 84-month auto loans.
Previously, Tesla offered auto loans that extended as far as 72 months. By providing longer-term loans, Tesla is allowing its customers to reduce their monthly car payments. It’s a savvy move that could persuade more potential Tesla buyers to pull the proverbial trigger.
Here’s the Problem With TSLA Stock
As you can see, I’m not generally opposed to investing in Tesla for the long term. However, valuation concerns indicate that today isn’t the right day to take a position in Tesla stock.
UBS analyst Patrick Hummel sees multiple positive aspects of Tesla’s business, just like I do. However, Hummel recently downgraded TSLA stock from “buy” to “hold.” The analyst’s primary objection, it seems, is that the stock has gotten ahead of itself.
“We continue to see Tesla globally leading the race to affordable electric and autonomous mobility, but on a one-year view, risk/reward looks balanced,” Hummel explained.
I, too, am glad to see Tesla making EVs more affordable. And, like Hummel, I view the risk-to-reward for Tesla stock as “balanced,” as opposed to “attractive.”
It’s not difficult to find valuation metrics to back up this concern. For now, I’ll just refer to Tesla’s non-GAAP trailing 12-month price-to-earnings (P/E) ratio, which is rather high at 65.01x. For comparison, the sector median P/E ratio is much lower, at 13.17x.
So, Is It Too Late to Buy Tesla Stock?
Tesla has a number of exciting growth catalysts, including the company’s efforts to make its EVs more affordable. Plus, there’s no denying that the Model Y is a juggernaut in terms of vehicle sales.
Yet, if you jump into the trade now, you’ll only end up investing in Tesla at a high valuation. I certainly don’t want anyone to be a price chaser.
So, while it’s too late to take a share position now, there’s still a strategy that you can use. Just be patient and wait for TSLA stock to pull back to a more reasonable price.
Personally, I think that $215 would be a good entry point, and you can always (assuming you have some cash available) add to your share position if the stock goes lower than that.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
