Tesla Stock: Still Too Expensive, Even Post-Omicron Dip

Tesla (TSLA) stock was not spared amid the latest round of Omicron variant-induced, market-wide selling pressure. Shares of Elon Musk's EV giant are now down around 10% from their all-time highs, just north of the $1,200 mark. Despite the correction, Tesla stock is still up over 58% over the past year and around 40% year-to-date. Trading at over 24 times sales, Tesla is one hot momentum stock that could be vulnerable to a vicious and unforgiving reversal.

Indeed, Elon Musk has been taking some profits off the table, and he's right to do so, as the valuation continued climbing to new heights. With much in the way of macro uncertainties, investors may wish to follow Musk's lead with a bit of profit-taking of their own, if they've yet to do so.

Looking at the longer-term chart, and this recent correction off record highs looks like just a tiny blip. Should Omicron continue dragging broader markets lower, look for Tesla to fall at a much quicker rate. The stock does sport a 2.04 beta, after all.

With an uncomfortably-high price-to-sales multiple, ever-strengthening competitors in the EV scene and an Apple (AAPL) Car likely coming in a few years down the road, I remain bearish on Tesla stock, despite being a big fan of Elon Musk himself.

What Justifies Tesla Stock's Hefty Multiple?

While I wouldn't take it as far as to call Tesla stock a bubble, I do think the bearish words of Dr. Michael Burry do deserve some merit. The stock has been on an incredible climb, as the market cap surged above and beyond the $1 trillion mark. Undoubtedly, Tesla is a pioneer in the red-hot EV space, and the market is likely to continue booming into the latter half of the decade. That said, the space is starting to get crowded, with pressure that could hit from all sides.

In terms of electric trucks, Rivian (RIVN) looks like a worthy competitor. With traditional U.S. automakers shifting gears into electric, the selection of EVs will only widen with time.

Further, with Chinese EV makers like NIO (NIO) getting in on the action, it's tough to see how Tesla will fare in a few years down the road. Its growth has been unbelievable, but the competitive landscape is getting tougher. Regardless, Tesla fans will stick by the firm, even as new offerings arise. In that way, the Tesla brand draws many similarities to that of Apple.

Apple Car Getting Ready to Go

With a self-driving electric Apple Car launch aimed for 2025, Tesla will finally meet its match. Given Apple's profound ability to leverage network effects with its incredible ecosystem, many Tesla fanatics may be enticed by Apple's offering.

Given how profoundly successful many Apple products are (including its polishing cloth that's reportedly back-ordered for months), I would not dare bet against Apple, even if its car ambitions seem far-fetched at this point in time.

The Apple Car went from a question-mark to something that could be a source of AAPL stock's recent strength amid broader market pressures and a severe threat to Tesla. For that reason, investors should be cautious before punching their ticket into Tesla stock. I believe there are far cheaper ways to bet on the future of the EV space.

Wall Street's Take

According to TipRanks’ consensus analyst rating, TSLA stock comes in as a Buy. Out of 25 analyst ratings, there are 12 Buy recommendations, 6 Hold recommendations and 7 Sell recommendations.

As for price targets, the average Tesla price target is $938.52, implying a 7.5% downside. Analyst price targets range from a low of $215.00 per share to a high of $1,485.00 per share.

Disclosure: Joey Frenette owned shares of Apple at the time of publication.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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