I’ve been an outspoken critic of Tesla (NASDAQ:TSLA) over the past couple of years. To clarify, it’s not that I don’t like the brand or the strategy of the business, or the charismatic Elon Musk. But I’ve felt that Tesla shares have been overvalued and previously didn’t offer me a good investment opportunity. Yet with the fall yesterday, the share price is now down 7% over the past year. This starts to change things.
Taking a tumble
The main reason behind the fall yesterday was the disappointing production and delivery numbers for Q3. Tesla historically releases the figures separately from its main financial results that are due later in October. Yet the delivery numbers can be good barometer of how strong revenue and profit will be.
For Q3, the business produced 365,923 vehicles. This fell short of what most analysts were expecting but the company built more cars than it could deliver. Analysts were forecasting deliveries around 358,000, but the final number came in at 343,230.
Based on the above numbers, I think some investors were spooked that the financial results could also disappoint. It has been well reported in previous months that the company is struggling with supply chain issues and higher core commodity costs. This isn’t unique to Tesla, but it isn’t able to escape the problems that the car industry in general is facing.
Why I’m not too worried
With growth stocks like Tesla, people are always looking for figures to beat lofty expectations. The forecasts might already be incredibly optimistic, making them very difficult to hit. But when I take a step back and compare the numbers to the past, I can see that the firm is still doing very well.
Let’s consider previous production numbers. In Q2, the company produced 358,580 vehicles. So, quarter-on-quarter, there’s growth. When I look at the year-to-date performance, deliveries are up 45% on the same period last year. With that in mind, I feel that the fall in the share price yesterday was driven more by short-term speculators rather than long-term investors.
For a long-term investor like myself, a growing business in a tough year like 2022 is something that stands out. If it can perform at this stage of the economic cycle, then in years to come (during a boom period) it should do even better.
Value emerging
I remember periods during last year when the stock’s price-to-earnings ratio was above 200. This was one of the reasons why I stayed away from investing in it. Now the ratio is at 87. That’s still well above average, but isn’t outrageous for Tesla.
Both components of the ratio make it more appealing for me to buy. The earnings per share figure has risen every quarter for the past two years. Yet the price has been readjusting downwards, hence the lower ratio figure.
The main risk to me buying now is that the share price could still be bloated by speculative retail traders. This can cause high volatility, as was seen yesterday, even though I don’t think it was justified. However, I’m happy to put up with these sharp moves, as I think the long-term direction should be higher. I’m seriously thinking about buying some Tesla shares in coming days.
