Down 71% in a year, are Tesla shares finally looking cheap?

During the Christmas holidays, one of the stocks that caught my attention was Tesla (NASDAQ: TSLA). It has fallen 45% over the past month, down 71% over the course of a year.

It is now threatening to drop below $100, a level not seen since the summer of 2020! This makes me wonder if Tesla stock is undervalued.

Great growth in previous years

Using ‘Tesla’ and ‘undervalued’ in the same sentence is not a common occurrence. After all, the hype surrounding the electric vehicle (EV) maker saw its stock price rise from $30 at the beginning of 2020 to $350 at the end of 2021. In the process, the price-to-earnings ratio (P/E) increased. to above 200. This is because earnings have not grown in the same way as stock prices.

This is unusual for growth stocks, as investors try and buy before companies that start to excel. Usually, it is the anticipation (or growth forecast) around a company that drives people to invest, even if the current financials are not looking good.

Tesla is a classic case of this, but it has shown strong growth in car deliveries over the past year. In fact, the latest figures for Q4 show deliveries of 405,278 vehicles, an all-time record. Next, the previous record was in Q3 2022.

Even with those impressive numbers, it’s hard for some investors (myself included) to get too excited about buying Tesla stock when it’s already trading at higher levels. However, this image quickly changed!

The sudden drop in Tesla stock

The stock was caught in last year’s general poor sentiment that flowed through the stock market in general. It’s the hardest for growth stocks, because everyone lowers their forecasts for the economic outlook.

However, most of the losses in Tesla stock have occurred over the past few months. I can see some company specific reasons for this.

One is that although the number of deliveries has increased, the numbers against the target have been missed. The Q4 numbers were the third straight in the post, which investors clearly didn’t do well.

There are also concerns about the focus of Elon Musk, who bought Twitter recently and seems to be putting a lot of time and effort into the platform. This has led some investors to wonder if they are dropping the ball when it comes to Tesla’s leadership and direction.

Patiently waiting

When it comes to those numbers, I don’t think Tesla stock is still undervalued. The current P/E ratio is 33, comfortably above Nasdaq 100 the average is 23. The Nasdaq 100 is also a similar comparison, as it includes the biggest tech names.

Given the fall in the stock recently, I don’t see why it would stop now. Therefore, I’m going to put it on my watch list. If the steep fall continues, it could be in undervalued territory over the next month. At that point, I would consider buying it.