What happened
Shares of Tesla (TSLA -1.92%) were hit hard on Friday. The electric car maker's stock fell as much as 7.2%. But as of 12:50 p.m. ET, the stock was down 5.5%.
The stock was likely down because of the pressure on growth stocks this week. Many shares of growth stocks like Tesla were down several percentage points or more on Friday, extending a trend in the market recently of many growth stocks selling off.
Image source: Getty Images.
So what
Likely one big factor sparking a sell-off in growth stocks on Friday was an epic 40% drawdown in shares of e-signature specialist DocuSign (DOCU -2.35%). DocuSign shares were slammed after the company provided a weaker-than-expected outlook for its fourth-quarter revenue.
"After six quarters of accelerated growth, we saw customers return to more normalized buying patterns," the company said in its third-quarter update.
The huge drop in the stock price may have made some growth stock investors worried about these stocks' pricy valuations, causing some knee-jerk selling on Friday.
Tesla shares have handily beat the market this year, rising 44% -- even including today's drawdown. It's not surprising to see shares taking a breather as investors reassess the valuation of growth stocks.
Now what
While it makes sense for some growth stocks to come down to more reasonable valuations, investors should keep in mind that many growth stocks trade at premiums for good reasons. Tesla, for instance, has seen its vehicle sales surge 87% year over year on a trailing-12-month basis. Plus, management expects deliveries to average a 50% annualized rate over a "multi-year horizon" going forward -- and demand for the company's vehicles combined with Tesla's production buildout efforts (including two new factories about ready to come online) suggest this bullish view is possible.
