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Shares of electric-car maker Tesla (TSLA -0.57%) have been on an absolute tear in 2024, rising more than 70% as of this writing. This obliterated the S&P 500’s 25% gain during this time. The huge gain has unsurprisingly sparked a lot of excitement around the stock. Fueling upbeat sentiment for shares, Tesla CEO Elon Musk has been praised for cozying up with President-elect Donald Trump, and the company is viewed as a major beneficiary of artificial intelligence as it works on autonomous driving technology and robots.
But is the stock’s recent gain more representative of hype or substance? After all, even a giant company’s stock can become overvalued if investors’ expectations are too optimistic.
Let’s take a look at Tesla stock that looks exciting at its current price.
Fundamentally, the automaker’s business is strong. Long gone are the days when the corporate was burning via money. These days, Tesla’s a money cow. Free money in the corporate’s maximum recent quarter got here in at more than $2. 7 billion, developing 233% year over year. This helped bring Tesla’s overall money and investments at the finish of the quarter to approximately $33. 6 billion.
While this track record and the company’s profitability give it some staying power, the key to any bullish thesis for Tesla stock is a positive view of a near-science fiction future. Investors believe that the company’s advancement in artificial intelligence software and hardware will result in an autonomous network of Tesla vehicles, adding an Uber-like profit stream for the company. In addition, investors expect an immediate and continued expansion of sales of electric cars, electric garages and solar products. The most sensible thing about all of this is that there is hope that the high-profile tech giant can make money by selling humanoid robots.
While it’s fun to think about the bullish case for Tesla’s inventories, other more skeptical investors worry that there’s too much guessing and hoping for the stock’s current value. The stock is trading at a value-to-earnings ratio of around 118 at the time of writing. An assessment like this leaves little room for potential setbacks, whether similar in business, industry, economics or geopolitics.
Additionally, while Tesla’s overall business appears strong, its shielding recently suffered an issue. Auto sales have slowed recently as high interest rates restrict consumers’ borrowing power. Tesla’s automotive profits grew just 2% year over year in the third quarter. This anemic expansion leaves a lot to be desired, given the stock’s current valuation. Furthermore, it should be noted that although Tesla has activities other than automobiles, it is still primarily an automobile manufacturer. Auto sales accounted for about 79% of its total sales in the third quarter. So, as long as higher interest rates make vehicle affordability a challenge for consumers, Tesla could continue to revel in below-average earnings expansion rates.
With all of this said, even though Tesla is a great company with a bright future, there’s nothing wrong with staying on the sidelines after the stock’s enormous run-up. If shares pull back meaningfully at some point in 2025, however, the stock is probably worth buying. After all, Tesla has a long history of strong growth and great execution, and it is well-positioned in attractive growth markets, namely electric cars and artificial intelligence.
Daniel Sparks and/or his ilk have positions at Tesla. The Motley Fool holds positions and recommends Tesla. The Motley Fool has a disclosure policy.
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