Is it worth buying Tesla shares in the new year?
Tesla (TSLA), with factual corrections, has so far brought investors a good profit. At the end of 2021, the world’s largest automaker by market capitalization is offering a similar risk-reward ratio. After a pullback of more than 20% from the record high reached in early November, Tesla shares were in “bearish” territory.
As a result of such a substantial drop, the company’s market capitalization dropped below $1 trillion. Tesla shares ended Thursday’s session at $926.92, and December looks set to be their worst month since March 2020.
Compared with the record high at the close of $ 1,229.91, recorded on November 4, the securities lost 21% of their value, indicating the beginning of a “bearish” market, rolling back from the peak by at least 20%.
However, long-term investors are already used to these ups and downs, often organized by Tesla CEO Elon Musk. The latest wave of sales began after Musk publicly announced his intention to sell 10% of his shares in the company after surveying Twitter. Since then, he has sold $12.7 billion worth of Tesla shares within five weeks.
The extremely high volatility, not caused by any fundamental catalysts, highlights the dilemma many long-term investors face, who do not tolerate extreme price fluctuations. Considering the recent collapse, since the beginning of 2021, Tesla shares have risen by 36% after an eight-fold increase a year earlier. Another 20% pullback After such a spectacular growth of Tesla has become challenging to recommend from a fundamental point of view. The company is undoubtedly the market leader in electric vehicles, and it will not be easy to surpass it, but its shares are trading with extremely high valuation multipliers.
The P/E multiplier for Tesla shares is 279. This high bar means that the automaker has no room for error regarding financial performance. According to the InvestingPro model, Tesla shares are a risky investment option due to their extremely high valuation. Their fair value, according to InvestingPro, is $743.35, which is 22% lower than current levels. Despite all that has, the purchase of Tesla securities with rollbacks has so far brought investors profit.
Morgan Stanley analyst Adam Jonas believes that in the foreseeable future, Tesla will remain a leader in the production of electric vehicles, batteries, and the development of autonomous driving technologies, which makes it attractive to long-term investors.
In fiscal 2022, we expect high profitability in the automotive industry, but at the same time, a less favorable comparison base and potential changes in signals and comments that may cast doubt on established expectations regarding the strategy in the electric vehicle market. Therefore, be selective if you want to own shares in this sector.
The company has a fast-growing, high-margin software business that can generate regular revenue from connected car software and services. Analysts at Wedbush Securities, one of the leading “Bulls” for Tesla, assigned the company’s shares a new target price of $ 1400, noting that it can control 50% of the electric car market in the future size of which can reach $ 5 trillion.
According to analyst Dan Ives, the company will benefit from President Joe Biden’s $550 billion infrastructure plan and improved demand in China. Over the next decade, this “Green” tsunami will create a $5 trillion market in which Tesla will lead.
Tesla shares are likely to continue trading volatile in 2022, given the high speculative interest in the company.
