Tesla stock is down 20% this year. Is it time to buy?

When I last covered Tesla (NASDAQ: TSLA) late last year, I said I didn’t see the stock as a ‘buy’ for me. One thing I was concerned about was the valuation.

Recently however, the valuation has come down as Tesla’s share price has pulled back. Year to date, TSLA has fallen around 20%. Has this changed my view on the stock? Read on to find out.

Tesla stock: is now the time to buy?

There are certainly some reasons to consider buying Tesla stock for my portfolio right now.

For starters, recent Q4 and full-year 2021 results showed that the company continues to generate strong growth. For 2021, the group delivered a record 936,000 vehicles, nearly double the 2020 figure. Meanwhile, total revenue for the year jumped 71% to $53.8bn.

Secondly, the company is now more profitable than it was in the past. Last year, it generated non-GAAP net income of $7.6bn, up from $2.5bn the year before. “In 2021, our accumulated profitability since the inception of the company became positive,” said CEO Elon Musk on the Q4 earnings call. “Which I think makes us a real company at this point. This is a critical milestone,” he added.

Third, Tesla looks to have some very exciting technology in the pipeline. One example here is its ‘full self-driving’ (FSD) tech. Musk believes Tesla’s vehicles will have FSD tech by the end of this year. This is expected to boost profitability further.

Another example is Tesla’s artificial intelligence-powered robot. Musk believes the group’s robot plans have the potential to be more significant than the vehicle business in the long run.

Overall, there’s a lot to like about Tesla stock right now, in my view.

Does Tesla have an attractive valuation?

I still have some concerns over the valuation, however. For 2022, Wall Street analysts expect Tesla to post earnings per share of $10.10. This means that at the current share price, the forward-looking P/E ratio is about 84. This is a lot lower than it was in the recent past, however, it’s still high and it doesn’t leave a margin of safety, in my view. If future growth is disappointing, Tesla’s share price could take a big hit.

And there are certainly things that could slow its growth rate. For example, supply chain challenges could potentially be a problem this year. In Tesla’s Q4 results, the company said: “Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through 2022.”

Competition from rivals could also slow growth. Today, consumers have a huge amount of choice when it comes to premium electric vehicles (EVs). In the last year or so, many automotive companies have released slick new premium EVs, including Ford, Porsche, Lucid, BMW, Mercedes-Benz, Volvo, and Rivian. Recently, analysts at Bank of America predicted that Tesla could lose significant market share in the years ahead. 

Putting this all together, I’m still not super bullish on Tesla stock. I do like the company, however, the stock looks risky to me. All things considered, I think there are better growth stocks I could buy today.