It's not often that the stock of a business that is growing at a 50% annual rate itself drops by 50% in less than a year, but that's exactly where Tesla (TSLA 1.53%) and its stock are right now. The stock got hit by several different factors, resulting in it nearly being cut in half since the start of the year.
But even through challenges that directly impacted manufacturing at the electric vehicle (EV) leader, Tesla managed to keep growing production volumes and revenue at a 50% annual rate so far in 2022. That discrepancy between the direction of the stock versus the business makes Tesla a potential investment worth researching further right now.
NASDAQ: TSLA
Key Data Points
Tesla's business is up...
It's pretty clear how and why Tesla's business is growing at such a fast pace. Market demand for EVs is global, and Tesla has the first-mover advantage. It is generating massive amounts of cash and reinvesting it to further grow the business. Tesla opened two new plants this year and grew the annual production capacity of its factory in Shanghai, China, to more than 1 million vehicles.
Image source: Tesla.
Even after those growth investments, Tesla has generated more than $6 billion in free cash flow in the first nine months of 2022. As of the end of the third quarter, it had more than $21 billion in cash and marketable securities.
Even with all that growth, there are understandable reasons why the stock is down by about 50% year to date. Valuation has long been one of the biggest bear arguments against owning Tesla shares. There was plenty of growth already built into the stock price heading into 2022. Earnings soared over the last two years as the business grew, but the stock remains expensive.
Data source: Tesla. Chart by author.
...But its stock is down
Even with that growth, its trailing-12-month price-to-earnings (P/E) ratio remains lofty at over 55. That's too expensive for many investors -- even those who believe net income will continue to grow -- especially in an uncertain economic environment. Some have sold off because of that.
Other factors contributed to the stock's decline, too. CEO Elon Musk sold about $19 billion worth of his Tesla stock this year related to his acquisition of Twitter. Some shareholders also may have fled the stock because they're wondering how much Musk's new role at Twitter will distract him from Tesla's business.
Tesla is still driving higher
Investors considering buying shares now need to think there are catalysts to drive Tesla shares higher from here. For example, Tesla will begin pulling in revenue from its Semi truck beginning on Dec. 1, when it makes its first delivery. The Cybertruck is also scheduled to begin production next year.
In addition to EVs, Tesla's energy business continues to grow. Revenue from its energy generation and storage segment jumped 39% year over year in the third quarter. That represented 5% of total revenue, and the company says demand there continues to outpace supply.
With the business continuing to fire on all cylinders, massive market demand for its products, and a stock price that has been cut in half, it looks like a good time to buy Tesla stock.
