Tesla (TSLA -3.55%) just reported a record quarter, and investors are jumping in the stock because of it. Many investors wanting more exposure in the electric vehicle (EV) sector may be wondering if today's pop means it's too late to buy Tesla.
After all, the competition is increasing from both EV start-ups as well as legacy automakers making the transition to electric. But Tesla has been showing that it can navigate headwinds including increasing raw material costs and production delays. For investors with the right mindset, it could still be a good time to buy Tesla shares.
Image source: Tesla.
Valuation has always been the knock on Tesla from those who shunned the stock. After today's jump, Tesla is being valued with a market cap of about $1.1 trillion. With a net income of about $5.5 billion in 2021, that gives it a trailing price-to-earnings (P/E) ratio of 200.
But revenue in the first quarter of 2022 soared 81% year over year. And net income in the quarter was $3.3 billion. That elevated P/E will drop quickly if it continues to have results like it just produced. The company itself says it expects vehicle deliveries to be able to grow at a 50% rate annually for several years to come.
Based on the most recent quarter, that might be a conservative prediction. The company has been able to navigate supply chain challenges successfully so far. Its Shanghai plant was forced to suspend production starting in late March, so those impacts will be known more when the second quarter is reported.
But its operating execution and brand are enabling it to overcome raw material price inflation, and still report strong profitability and margins. If Tesla is able to ramp up its recently opened facilities in Germany and Texas successfully, and continue to execute as it has, there's good reason to think that even today's stock price could provide market beating returns in the future. Investors who buy it would need to have patience and expect volatility, however. That might mean it's not for everyone, but today's stock jump isn't a reason on its own to avoid the stock.
