Tesla (TSLA 0.44%) has been a monster stock for many investors, with shares more than doubling the S&P 500's gains over the past five years. Those gains have come even as Tesla's stock has been very volatile and as investors have weighed whether CEO Elon Musk has fully committed his attention to his company.
I'm inclined to believe that any company, even Tesla, can rebuild its brand. But is now really the right time to invest in Tesla stock, which trades at less than $330? While Tesla likely isn't as far gone as some might assume, here are a few reasons why you probably should hold off on buying Tesla stock right now.
Image source: Tesla.
Its shares are expensive
With the S&P 500's returns doubling over the past five years, the valuations of many stocks have skyrocketed. As a result, these stocks look pretty expensive right now based on popular comparison multiples such as the price-to-earnings ratio.
But that doesn't mean investors aren't paying a premium for some of these stocks. Tesla's shares have a price-to-earnings (P/E) ratio of 179, compared to the average P/E multiple of 24.7 for the S&P 500 index. This means Tesla's stock is pricey no matter how you slice it.
Despite the stock being always expensive, Tesla has always been an excellent investment over the years. But lately, the business seems to be inflecting -- the electric vehicle (EV) maker's sales and earnings are falling. Automotive revenue was down 21% and GAAP earnings per share tumbled 70% to $0.12 in the first quarter. However, the market is still paying a premium. Now things could turn around for Tesla, but investors should be cautious about buying the stock if this trend continues.
Automation and robotics are unproven
Musk has said that the future of Tesla will be built around the company's Optimus humanoid robots and autonomous vehicle (AV) services. While these ideas can seem far-fetched, they're tremendous opportunities, with humanoid robotics estimated to grow into a $5 trillion market by 2050 and autonomous vehicles potentially reaching $2 trillion by 2035.
Tesla's making progress on both fronts, with the company recently launching its robotaxi service in Austin, Texas and having a goal of producing 5,000 Optimus robots this year.
While there's certainly potential in both of these markets, I think it's a bit premature to buy Tesla stock on these prospects. It'll likely take many more years for the humanoid robotics market to take off (if it ever does). And while AVs have clear benefits and companies have already made lots of progress, namely Alphabet's Waymo, it's still unclear if Tesla will be successful in this market.
In short, these are huge unknowns, and buying Tesla stock on these ideas means you're placing a big bet on unproven markets and Tesla's ability to succeed in them.
NASDAQ: TSLA
Key Data Points
Musk still seems distracted
Just a few days before I wrote this, Musk posted on X that he wants to start a new political party. I'm not here to talk about whether or not the U.S. needs a new political party, and, of course, Musk has strong political views, like most Americans. But the problem here is that Musk seems to be increasingly distracted by things that aren't Tesla-related.
After stepping down from leading the Department of Government Efficiency (DOGE), Musk said he was committing his time back to his companies, specifically saying that he'd be back at Tesla full time. While that may prove true, it's also clear that Musk's political involvements have taken away his time and attention, and that may not change soon.
This distraction is on top of the responsibilities he already has in addition to Tesla, including owning X, managing his AI company xAI, and SpaceX. There's only so much time and attention that any one person can give a company, and Musk's constant attention shifts are problematic for Tesla. The EV company needs a leader who can devote attention to the company, and the jury is still out on whether or not Musk will be able to do this.
Tesla could still be a good investment, but be cautious
For all the reasons above, I don't think buying Tesla stock is a smart move right now. If Musk can prove he's actually focused on Tesla, or someone else steps into the leadership role, then I think it would change the investment narrative.
But for now, Musk looks too distracted, the stock is too expensive, and the company's future growth is dependent on two very unproven markets. If you've got Tesla shares already, it's probably fine to hold them, but a few things need to change before Tesla looks like a good stock to buy.
