After experiencing a massive bull run from early 2020 through Dec. 2021, shares of electric vehicle (EV) giant Tesla (TSLA 12.06%) have hit a roadblock. The stock returned more than 1,000% to shareholders who stayed with the company from Jan. 1, 2020 through the end of last year. Shares of the EV leader have been moving in reverse since the start of 2022, however, down 30% year to date versus the S&P 500, which has dropped just 13% in the same time frame.
So what exactly is causing the stock to collapse? While COVID-19-related shutdowns at its Shanghai factory, global supply chain restraints, and an overall gloomy economic environment certainly haven't helped its case, CEO Elon Musk has clouded investor confidence in his EV business. The world-renowned entrepreneur has been grabbing more headlines than usual, starting with his dramatic potential takeover of social media giant Twitter. More recently, he made news after telling executives at Tesla to "pause all hiring worldwide" as he wanted to slash 10% of the company's salaried workforce.
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Whether investors fear Musk buying Twitter would be a distraction or that his recent comments suggest he thinks a recession is on the horizon, one thing is very clear: The company's stock price has taken a hit. But with all this short-term noise muddying the waters, investors can lose sight of the fundamentals. Operationally, Tesla continues to make great headway, and given its latest pullback, investors should consider hopping on board today.
The business is only getting stronger
Tesla's business is booming. In its first quarter, the company generated $18.8 billion in total sales, up 81% year over year, and its adjusted earnings per share (EPS) ballooned 246% to $3.22. Total production rose 69% to 305,407, and vehicle deliveries climbed 68% to 310,048. Profitability is improving swiftly as well with the company's gross margin and operating margin increasing 779 and 1,349 basis points, respectively, to 29.1% and 19.2%.
As a result, the EV juggernaut has not had to worry about generating cash -- the company produced $2.2 billion of free cash flow (FCF) in the first quarter, translating to a 660% increase over the same period last year. Despite persisting supply chain restraints, management is guiding for 50% average annual growth in vehicle deliveries over a multiyear time horizon.
Wall Street analysts project Tesla's total revenue to reach $86.1 billion in 2022, equal to 60% growth year over year, and its adjusted bottom line should jump 79% to $12.14 per share. The story remains the same for next year -- analysts expect sales in fiscal 2023 to grow 35.2% to $116.4 billion, while adjusted EPS rises 30.7% to $15.87. These are staggering growth rates, and Tesla's elite position in the rapidly expanding global EV market adds an extra level of protection for investors moving forward.
Tesla is worth consideration today
Tesla surely isn't a risk-free investment. After falling 30% year to date, the stock still trades at about 60 times forward earnings, and while I think its latest pullback gives investors a stronger margin of safety than before, the company's valuation remains very rich.
That said, this business is better now than ever before, and I firmly believe it will eventually grow into its handsome valuation. Buying Tesla at current levels could lead to monumental gains down the road. So even though the stock may move lower in the near future in response to short-term news and headwinds, long-term investors should feel at ease owning this stock right now.
