Longtime Tesla (TSLA -2.44%) shareholders know how volatile its stock can be. After reaching its peak price of about $410 per share, it tumbled last year along with many other technology and growth stocks.
But shares have rebounded in 2023, nearly getting back to $300 per share in mid-July. After a month-long decline that took it back down to around $215, the stock is marching higher again. Telsa stock has jumped over 10% in the past week, and investors may be wondering if now is the time to get on board.
Investor sentiment
Investor sentiment often drives Tesla's share price more than any business fundamentals. That's because much of the company's expected success has already been priced in. By traditional metrics, Tesla has long been valued at a premium.
The stock dropped in 2022 as the Federal Reserve quickly hiked interest rates to fight high inflation. But Tesla isn't a typical tech growth stock, either. It already generates massive amounts of cash and held more than $23 billion in cash and equivalents on its balance sheet as of the end of the second quarter with only about $1.5 billion in debt. That means higher interest rates won't sap a meaningful amount of earnings from its bottom line due to debt payments.
Data and Image source: Tesla.
The chart above shows quarterly results for cash flow and net income. While those earnings -- as well as cash flow -- have been growing nicely, bullish investors see much more to come as Tesla opens new vehicle factories and continues to expand its energy business.
Catalysts on the horizon
Much of the downward movement in Tesla shares this year has come due to its vehicle pricing strategy. While net income did grow 20% year over year in the second quarter, that was from sales that jumped 47%. That's because the company has been cutting vehicle prices globally to boost its sales volumes. The pricing strategy resulted in Tesla's operating margin falling to 9.6% in the most recent quarter from 14.6% in the year-ago period.
Tesla CEO Elon Musk has been open about his pricing strategy. On the company's second-quarter investor conference call in July, he reiterated that his approach favors growth in sales volume over pricing for now. Musk believes that will pay off down the line when highly profitable options, potentially including autonomous driving software, are being bought by more customers.
Self-driving technology is only one of several potential catalysts on the horizon. Tesla also continues to expand its energy business. That segment already generated more than $1.5 billion in revenue in the second quarter. And the Cybertruck could start contributing meaningful revenue within a year.
Another revenue stream beginning to get noticed is Tesla's Supercharger network. The company has been signing deals with a growing number of EV makers to open up its supercharging network to non-Tesla vehicles. Wedbush analyst Dan Ives recently looked at the potential for the network and told clients he believes it will deliver $10 billion to $20 billion in annual revenues by 2030.
Investing for the future
Tesla stock remains richly valued based on its recent results and near-term expectations. But as recently departed CFO Zach Kirkhorn said on the quarterly call, the company's plan right now is to generate cash to fund its longer-term plans. That will hold back profit growth, but could pay off for investors in the long run. Kirkhorn stated of those longer-term investments, "the portfolio of products and technologies that the technical teams are investing in right now, this is intense. It's intense in terms of investment. It's intense in terms of potential."
That kind of outlook is what could prompt investors to buy the stock now, and what could have it moving back to $300 per share and beyond. It remains an investment best suited for those with a long time horizon, however.
