For years now, CEO Elon Musk and his company,Tesla (NASDAQ:TSLA), have provided plenty of fodder for controversy and headlines. Plus, on Wall Street, TSLA stock is constantly a topic of debate and contention.
Among the flash points is Tesla’s valuation. Some value-focused investors might object because the company’s stock is trading at a seemingly high multiple.
Yet, let’s try to avoid knee-jerk reactions. TSLA stock might appear to be expensive at first glance, but deeper research may reveal that a high-growth business justifies a rich valuation.
At the end of the day, the data should decide what’s reasonable and what’s not. And in Tesla’s case, the numbers should convince even the staunchest skeptics that this automaker’s moving vehicles at a fast pace.
TSLA Stock at a Glance
The Tesla bear camp was out in full force, as you might recall, back in 2020. At that time, the TSLA stock price was moving up quickly, and the company enacted a 5-for-1share split on Aug. 31 of that year.
As it turned out, neither the stock split nor the protests of the bears could slow down the bull market. If anything, it just accelerated into 2021.
January was a particularly heady month, as TSLA stock slammed into resistance at almost exactly $900. The buyers tried to push the stock above $900 again in February, but to no avail.
Admittedly, traders who chased the stock at that level were punished in 2021. The Tesla share price chopped and flopped around during the summer and into the fall, landing at $780 in early October.
So, here’s the kicker. Tesla’s trailing 12-month price-to-earnings ratio is 411.49x. This, no doubt, will frustrate some value investors.
A New Paradigm
On the other hand, Tesla’s P/E ratio has been in the triple digits for quite a while now.
Today’s investors must be able to adapt to a new paradigm: a stock is worth whatever people are willing to pay for it, and Wall Street will continue to reward a high-growth company for as long as it wants to.
The best advice for angry value investors is: don’t try to resist the reality of today’s marketplace. It’s not a battle you’re likely to win.
Besides, Tesla’s delivery data is clearly on the right track.
For the third quarter of 2021, Tesla delivered 241,300 electric vehicles. That figure topped the analyst consensus estimate of 232,000.
Furthermore, Tesla’s quarterly shipments grew 20% compared to the prior quarter, and an eye-popping 73% from the year-ago quarter.
Continuing to Dominate
Wedbush analyst Dan Ives reacted to these figures with an insightful comment about Tesla’s ability to thrive despite the company’s challenges.
“While there are many competitors in the EV space, Tesla continues to dominate market share as evidenced again this quarter while battling through the chip shortage and now is seeing rebounding China demand after facing headwinds earlier this year,” Ives explained.
Indeed, the global semiconductor shortage hindered many automakers’ production lines. Yet, despite this, Tesla’s second-quarter revenues nearly doubled to $11.96 billion. Moreover, Tesla’s quarterly revenue result beat Wall Street’s estimate of $11.53 billion.
For the full year of 2021, Tesla has guided for more than 750,000 vehicle deliveries. That’s ambitious, but at the current rate, the company should be able to exceed its expectations. So, the naysayers don’t have much data on which to base their bear thesis now.
For Tesla’s investors, the future is looking as bright as ever.
As Ives put it, Tesla’s recent results speak to “an electric vehicle demand trajectory that looks quite robust for Tesla heading into the fourth quarter and 2022.”
The Takeaway
Tesla’s price-to-earnings ratio might be a hard pill for some investors to swallow. Yet, investing isn’t always about bottom-fishing for rock-bottom valuations.
It can also be about high-growth businesses that beat expectations. In Tesla’s case, the company is undeniably delivering plenty of vehicles — and positive surprises for the shareholders.