Tesla (TSLA -1.36%) stock is losing ground in Thursday's daily trading session. The electric vehicle (EV) company's share price was down roughly 4.7% at 11:30 a.m. ET today.
Tesla stock has lost substantial ground following the news that CEO Elon Musk's $44 billion bid to buy Twitter has been accepted by the social media company. The EV stock is now down roughly 16% since news broke that the acquisition proposal had been accepted. With shares seeing a substantial pullback recently, investors may be wondering whether it's a good time to invest in the EV leader.
Look past the factors driving recent sell-offs
The recent decline for Tesla's share price appears to be driven by concerns that CEO Elon Musk will need to sell a substantial portion of his holdings in the company in order to finance the Twitter deal. Investors are also concerned that becoming heavily involved with the social media platform will make the CEO less capable of running his EV company.
A flood of shares hitting the market would likely result in the stock price being pushed down in the near term, but it's likely that the company's valuation would return to trading based on the market's assessment of its fundamentals and growth outlook before too long. While there remains the potential for Musk to become distracted by his involvement with Twitter, he's proven himself to be a capable executive and probably deserves the benefit of the doubt when it comes to being able to delegate tasks as needed. It seems unlikely Twitter would become his new focus.
While I think that the catalysts for Tesla's recent sell-offs are probably mostly noise, that doesn't mean I'm particularly bullish on the company. Tesla stock trades at very rich valuation multiples compared to most other established players in the automotive market. That's at least partially deserved.
The EV innovator is growing sales and earnings at rates that far outclass industry stalwarts, and the potential exists for it to see more explosive growth courtesy of catalysts including its battery technologies and self-driving software licensing. However, the company is valued at more than four times the combined market capitalizations of Volkswagen, General Motors, and Ford, and I'm not sold on it deserving that premium.
Because of its highly growth-dependent valuation and the highly competitive nature of the auto industry, I'll be staying away from Tesla stock. The company might keep delivering strong results, and it undeniably has an incredible track record when it comes to proving the skeptics wrong, but I'm staying on the sidelines for now.