Please ensure Javascript is enabled for purposes of website accessibility

Why Tesla Stock Fell Sharply on Friday

By Daniel Sparks - Mar 26, 2021 at 5:29PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The electric-car maker's shares are now down 36% from all-time highs.

What happened

Shares of Tesla (TSLA 5.14%) took a hit on Friday. At its worst point during the trading day, the stock was down 6.3%. However, by the time the market closed, shares were down 4.4%.

The growth stock's decline extends a big pullback for the stock recently, largely driven by growing negative sentiment in the market about the valuations of stocks like Tesla that soared in 2020. Investors seem to be doing some profit-taking.

A woman unlocking her Tesla vehicle with a mobile app

Image source: Tesla.

So what

Many growth stocks have been falling since about mid-February. The market seems to have decided it was time to do some profit-taking on these stocks after an enormous run in 2020 and the first six weeks of this year. Though many growth stocks rebounded a few percentage points on Friday, not all of them did. Further, most growth stocks are still down sharply from levels in February.

Without any major developments regarding Tesla specifically on Friday, fear amid a big pullback for the stock was likely the primary driver for the decline.

Of course, shares are still up 640% since the beginning of 2020.

Now what

Tesla shares do trade at a pricey valuation, making them look like they may be significantly overvalued. Investors should consider that management expects vehicle deliveries to grow more than 50% this year. Indeed, Tesla has said it expects to sustain an average compound growth rate of about 50% for its vehicle deliveries for the foreseeable future.

In addition, Tesla is now generating substantial free cash flow. This means it not only has big growth opportunities in front of it, but it can primarily fund those opportunities with internally generated cash flows.

Tesla's stock may be down, but its business is thriving.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
$761.61 (5.14%) $37.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.