Over the last three months, Tesla (TSLA 2.06%) shares have lost about a third of their value. Year to date, they are down more than 40%. The pullback in the stock price likely has a lot of investors wondering if now is a good time to buy the electric-car maker's stock. After all, even though shares are down the underlying business is growing rapidly. Perhaps Tesla's fundamentals have caught up with its stock price recently.

Is the growth stock's valuation attractive after its sharp pullback or is the premium on the stock still too high? Let's dig in to find out.

Impressive execution

The world may be facing intense macroeconomic certainty but you wouldn't know it by looking at Tesla's recent business results. Third-quarter revenue soared 56% year over year and free cash flow for the period increased 148% to about $3.3 billion. Further, the company's cash position grew to $21.1 billion.

Q3 was outstanding. Record revenue. Record operating profit. Record free cash flow.

The strong quarter, of course, was fueled by Tesla's surging vehicle deliveries. Total third-quarter deliveries increased 42% year over year to 343,830. 

More strong growth is expected

If you're thinking the quarter was a fluke, think again. The company's execution is solid even when you zoom out. Tesla expects full-year production to grow 50% versus 2021. Growth in deliveries is expected to be "just under 50%" said Tesla chief financial officer Zachary Kirkhorn in the company's third-quarter earnings call.

Regarding the fourth quarter specifically, Tesla CEO Elon Musk insinuated during the call that vehicle order levels remain strong. "I can't emphasize enough, we have excellent demand for Q4, and we expect to sell every car that we make for as far in the future as we can see," Musk explained. "So, the factories are running at full speed..."

Buy, sell, or hold?

Clearly, things are going well for Tesla -- especially relative to the rest of the auto industry. A report by auto dealer marketing and operations software company Cox Automotive forecasts that U.S. auto sales will fall about 9% this year. Global trends are largely expected to be just as bad if not worse.

Tesla's strong business performance during a challenging environment highlights the automaker's momentum and the powerful secular demand tailwinds for fully electric vehicles. All of this to say, the stock's decline marks a good time to consider the stock. Sure, Tesla's price-to-earnings ratio of about 61 at the time of this writing may seem pricey at first glance. But when investors consider the company's strong momentum and management's optimistic outlook, the valuation starts to look more attractive.

However, investors who decide they want to buy shares of Tesla stock should consider doing so in moderation. When stocks trade at pricey valuations, a slight downgrade in Wall Street's long-term outlook for the company could have a dramatic and sudden negative impact to the stock price. Any investor who buys shares, therefore, should consider making the stock a very small percentage of their total portfolio.