The disconnect between Tesla’s business and the stock price continues to widen
The macroeconomic and geopolitical backdrop has weighed on the stock market since the start of 2022. Whether it’s soaring inflation, interest rate hikes from the Federal Reserve, or the negative side effects of the Russian invasion of Ukraine, stocks have been absolutely pounded lately. Since the beginning of the year, the S&P500 fell 21% and many investors believe a recession is becoming more likely.
However, the sell-off has created many wonderful buying opportunities for cautious investors. Many businesses continue to significantly lose market value despite continued operational and financial success.
This is precisely the case for You’re here (TSLA 4.67%) today. The king of electric vehicle (EV) business is operating at a strong level, but its stock price has contracted 44% since the new year. Corrections are unavoidable, you might as well exploit them rather than fear them. Here’s why Tesla is a great stock to own today.
The leader in electric vehicles is firing on all cylinders
Make no mistake, Tesla isn’t in trouble, financially speaking. In its latest quarter, the electric vehicle maker grew total revenue 81% year-over-year to $18.8 billion, and adjusted earnings per share soared 246%, to reach $3.22.
As she continues to expand her operations at a rapid pace, the company’s business is rapidly becoming more profitable. In the first quarter, its GAAP gross margin and operating margin increased 779 and 1,349 basis points year over year, to 29.1% and 19.2%, respectively.
In the wake of high inflation and persistent supply chain bottlenecks, Wall Street analysts still expect the company to have a strong year. In fiscal 2022, analysts expect Tesla’s total revenue to rise 58% to $85.3 billion and adjusted earnings per share to jump 77% to $11.99. Those are impressive growth rates for a company that’s down 43% year-to-date, but growth isn’t Tesla’s only strong suit.
The company has a cash and cash equivalents position of $17.5 billion and debt – excluding vehicle and energy financing – of just $100 million. Similarly, the electric vehicle juggernaut generated $2.2 billion in free cash flow (FCF) in the first quarter, a staggering 660% year-over-year increase.
Once considered a speculative investment, Tesla has grown into a highly profitable company with a strong balance sheet and solid cash flow generation. Going forward, the electric vehicle leader is well equipped to expand its operations and weather any foreseeable economic storm.
A wonderful time to buy
The Commander EV looks like a great investment at the moment. The gap between its operating performance and its valuation continues to widen, serving as a clear buy signal for long-term investors.
Given the current economic environment, I would not be surprised to see this stock continue to fall in future trading sessions. That said, it’s not a good idea to try to time the market – I still think we’ve been presented with a nice window of opportunity to buy shares in the electric vehicle leader. For investors with extended time horizons, it’s time to save the truck and buy Tesla stock today.