Tesla (NASDAQ: TSLA) stock has been falling recently, and since the end of November, the share price has sunk 18%. After its 50% rise over the past year, this fall could be due to many investors banking profits. This has included Elon Musk, who is currently in the process of selling 10% of his Tesla stock. While this is partly due to tax reasons, he has also stated in the past that he feels the shares are too expensive. But as the Tesla share price has fallen below $1,000, is now the ideal time to buy?

High potential

There is no doubt that Tesla has a huge amount of potential. Indeed, even despite the challenges posed by the pandemic and the recent semiconductor shortage, car deliveries are still on track to rise by almost 70% year-on-year in 2021. It is also in the process of expanding vehicle production facilities, which should help continue this rapid growth. The introduction of new models will certainly help with this.

And growth in the past has also been tremendous. Indeed, in the third-quarter trading update, revenues totalled nearly $14bn, a 57% rise year-on-year. After managing to reach profitability in 2020, profits also keep on growing. In fact, in the third quarter they totalled over $1.6bn, a 389% rise from last year. This gives me hope that profits can continue to grow, and Tesla stock will hopefully rise as a response to this.  

As such, especially due to the accelerated shift towards more green energy, Tesla is certainly full of potential.

The risks

Despite this excellent potential, there are valid reasons why Tesla stock has dipped recently. For one, it is still valued extremely highly, with a market cap near to $1trn. This means that Tesla is valued at higher than the next 10 largest automotive companies combined.

I worry that this valuation may be over-optimistic. For example, competition in the EV sphere is certain to increase. This includes Toyota, which recently announced that it would be investing $35bn in an electric push to take on Tesla. Further, Tesla also faces competition from other pure EV companies such as Lucid Motors and Rivian, both of which have completed IPOs recently. These are likely to take market share away from Tesla, and may slow growth.

From a valuation perspective, Tesla also trades at a forward price-to-earnings ratio of 120 and a current price-to-sales ratio of around 20. These are both very high and may indicate that the shares are still too pricey, despite the recent dip.

What am I doing with Tesla stock?

While I am very impressed with Tesla’s business, I still believe that it is overvalued. In many ways, I think this partially explains Elon Musk’s recent selling spree. As such, I won’t be buying Tesla stock just yet, as I feel that there is further to fall.

The post At under $1,000, is now the perfect time to buy Tesla stock? appeared first on The Motley Fool UK.

More reading

• Tesla’s share price just fell under $1,000! Should I buy the stock now?
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• Tesla shares hit bear territory! Here’s why there could be further downside ahead
• Could EV stocks Rivian and Lucid be the next Tesla?
• Morgan Stanley’s Tesla share price target is $1,200. Is it a buy?

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.