Tesla (NASDAQ:TSLA) shares are one of the more compelling growth stocks I currently own in my portfolio. As the price is down roughly 60% from all-time highs, I think this is a really compelling opportunity for me to buy more of the shares.
Pivoting from EVs to AI and robotics
In my previous research on Tesla, I was convinced the company had a strong future. And I cited its full self-driving capabilities as one of the core reasons for this. Autonomous taxis by Tesla could be a big market, I feel.
However, that’s not all there is to the operational future. The company continues to develop a robot called Optimus, and it has a machine-learning training programme called Dojo, which should be instrumental in powering its future advanced tech offerings.
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There’s some competition with OpenAI at the moment, which is pioneering the famous ChatGPT. However, I think Tesla can adopt a very different approach to AI, with a deeper emphasis on robotics.
The financials spell opportunity for me
It’s definitely reasonable to state that Tesla was overvalued in 2022. However, now I think the stock’s become undervalued.
Part of the reason investor confidence in the shares has waned recently is that its gross margins have declined, down roughly 4%. This was due to tough macroeconomic conditions and rising competition in the EV market, particularly in China. Tesla cut prices multiple times as a result.
But revenues have also delivered much slower growth recently, and there’s been a contraction in earnings and free cash flow. For example, revenue only grew 9.6% over the last year. Compare that to the 10-year average of 38%, and we can see why investors are a little deflated at this time.
However, the stock price has really adjusted as a result of the current slowdown. With a price-to-earnings (P/E) ratio at the moment of roughly 45, compared to a median ratio of around 107 over the last 10 years, the opportunity starts to become quite a bit clearer. Now, Tesla’s trading at a lower P/E ratio than Amazon and close to other big tech companies like Microsoft. That’s reasonable, in my opinion, because I think moving forward, Tesla’s going to be viewed as an advanced technology company, not just a car maker.
What if the operational changes don’t work?
I’m clearly optimistic about Tesla, but that still doesn’t mean I’m gambling. I hold it in my portfolio at roughly 7.5% of my entire assets.
Unfortunately, there’s always a chance the company’s future plans are unsuccessful. Companies like Alphabet‘s Waymo actually have the lead right now in autonomous taxis.
There are a lot of regulatory hurdles when it comes to AI, and there’s a significant chance that this becomes more acute as the technology scales. Especially when it comes to autonomous robots, which Tesla’s developing, safety will be paramount. Legal restrictions could definitely slow, or even totally inhibit, growth in some areas because of security concerns.
I’m staying invested and watching carefully
Even given the risks, I think the potential for high growth is too good for me to ignore. I believe in the management. While it’s going through a tough time right now, I think it will pull through to brighter days for shareholders.
