Tesla just announced a big shift in its business direction that could change the company forever.
There are many reasons to dislike Tesla (TSLA +3.50%). However, it is hard to deny that the company is highly innovative, as it essentially created the modern electric vehicle (EV) market. But the big reason to buy the stock right now may have nothing to do with EVs. Here are some things to think about before you buy Tesla stock.
A controversial CEO and an expensive stock
Elon Musk, Tesla’s visionary CEO, is a polarizing figure. His actions and public statements, in and out of the business world, have impacted Tesla’s stock for better and worse. If you can’t stand the kind of volatility that comes with such a high-profile CEO, you probably shouldn’t buy Tesla stock.
Image source: Tesla.
Tesla stock, meanwhile, is expensive. There’s no way around that, given that the price-to-earnings ratio is a massive 390. That’s well above its five-year average P/E of 98, well above the S&P 500‘s (^GSPC +1.97%) 28, and shockingly higher than most auto competitors. The company’s price-to-sales and price-to-book value ratios are also high on both an absolute and historical basis. If you are a value investor, you will not want to buy Tesla.
But aggressive growth investors might actually appreciate the big decision that Musk just made.
1 reason the stock could soar
In addition to EVs, Tesla’s business includes battery storage and solar power products as well as self-driving taxis and humanoid robots. A bigger way to think about Tesla is as a play on the technology shifts taking place in the world. The EV business is helping fund investments in other areas.
Today’s Change
(3.50%) $13.90
Current Price
$411.11
Key Data Points
Market Cap
$1.4T
Day’s Range
$397.75 – $414.55
52wk Range
$214.25 – $498.83
Volume
63M
Avg Vol
73M
Gross Margin
18.03%
That view was bolstered by Tesla’s recent decision to eliminate slower-selling EV models X and S. It isn’t introducing new EV models; it is retooling the affected plants to build humanoid robots. Suddenly, Tesla is looking like a car company and a robotics play. This decision is likely to play out over a few years, so only long-term investors should consider buying Tesla because of this business shift. However, if robots take off as Musk expects, an investment in Tesla could pay off big despite its currently expensive price tag.
Tesla is probably not a good pick for conservative investors or for those who use a value approach. However, if you believe in Elon Musk’s vision of the future and can handle risk, it might still be worth buying.