Is Tesla still a growth stock? Its sky-high price-to-earnings ratio may keep many investors from seeing its growth potential, but the electric car maker has plenty of cash and a good cash flow. The market for electric vehicles is potentially massive, with plenty of room left for growth. Should you buy Tesla stock? How can you buy Tesla stock?
An Opportunity to Invest in Tesla
Tesla’s recent three-for-one stock split has created an opportunity for smaller retail investors to buy into a top tech stock with great growth potential.
The split means that Tesla shareholders now have three times as many shares, with each worth a third of the value of a former full share. The split translates to a significant drop in the price of a single share, allowing new investors to buy full shares for much less.
Tesla’s company valuation may be steep, but investors who shy away from the tech company fail to consider that the valuation might be fair. Here are some reasons why Tesla’s worth a lot of money, indeed.
- The company maintains a healthy balance sheet.
- Tesla’s revenues are soaring, with plenty of room left for growth.
- There is an insane amount of demand for electric vehicles in general and Tesla cars in particular.
Tesla’s Fundamentals
The company’s cash reserves and free cash flow are impressive. It currently has over $18 billion at hand. The trailing-12-month free cash flow is at $7 billion. In 2020, this number was $2.7 billion. By 2021, it had climbed to $5 billion.
The revenues are on a similarly optimism-inspiring course. The trailing-12-month revenue is $67 billion, a marked increase from last year’s $54 billion and 2021’s $32 billion. The company plans to increase its production and unit deliveries. And if its website is any indication, demand on the part of customers remains as strong as ever.
The Market for Electric Cars is in its Infancy
Although electric cars have been roaming the roads for quite a few years, manufacturers have barely begun scratching the surface of the market. As the world does its best to wean itself off of fossil fuels, it is safe to assume that in the future, we won’t have any gas-powered cars left running.
That is a huge market electric vehicles have yet to conquer. And Tesla certainly aims to grab its fair share of it.
In 2021, Tesla delivered around one million vehicles. Even if it sticks to its goal of increasing output by 50%, that only means 1.5 million new vehicles in 2022.
Experts estimate the size of the global new vehicle market to be around 80 million units. That leaves more than enough room for growth for Tesla, even if we account for other electric vehicle brands and their customer bases.
Other Factors That Make Tesla Stock a Buy in 2022
The current share price, the company’s fundamentals, and the growth potential make Tesla stock a buy right now. Analysts are bullish on Tesla stock due to these factors, but other fundamentals make Tesla even more bullish.
One such factor is the passage of the Inflation Reduction Act, more precisely the $7,500 tax credit it offers for electric vehicles. The extra money is certain to encourage hesitant Tesla vehicle buyers to pull the trigger on their purchase.
Some have likened the inclusion of the tax credit to “Christmas in August” for Tesla.
Furthermore, to qualify for the credit, electric vehicles must be made in North America. This legal provision alone excludes 70% of Tesla’s competitors, giving the company a considerable edge.
The time to buy Tesla stock is now. The constellations seem to align to allow Tesla to double its current output of electric vehicles by 2024.