Tesla stock correction: should I follow Cathie Wood’s dip-buying spree?

Tesla (NASDAQ:TSLA) shares fall in 2022. Elon Musk’s EV venture is down 68% over 12 months – that’s some big losses.

But as most investors avoid faltering companies, star stock picker Cathie Wood continues to buy more for her Ark portfolio.

In fact, Kayu appears to have bought Tesla stock five times ARKK ETF since December 21. The biggest deal was when he bought shares worth more than $19m, based on the closing price of $108.10 the same day.

So should I buy Tesla stock at a price like Wood – the ‘best’ investor of 2020 – or should I follow the crowd?

A fall from grace

There was a point during the past year when Tesla seemed to defy the market, staying strong while growth stocks collapsed around it.

I’m sure part of that is due to Musk’s popular following and confidence in his growth plans. Wood has been part of that fan club, admitting that Tesla will be in “pole position for dominance“The EV market is in transition when it’s really going to happen.

However, Tesla’s downfall eventually came. In early September, Tesla shares were valued at over $300. Today, they are worth just over $100.

The collapse has been influenced by a number of factors, including Musk’s sale of Tesla shares to finance the take-over of Twitter, Tesla’s missing delivery targets, and concerns about margins.

Evaluation

Even with this massive stock price fall, Tesla still doesn’t look cheap. The company’s current price-to-earnings (P/E) (TTM) ratio is 30.5. And its price-to-sales ratio (5.3) is higher than its non-US peers.

But the numbers aren’t entirely illuminating, and neither are the discounted cash flow calculations. And because forecasting what Tesla’s earnings will be going forward is difficult.

Growth is slow and margins are under pressure. It’s too much for investors and makes the calculations above a bit pointless.

I followed the crowd

There are several reasons I don’t buy Tesla stock. To begin with, valuing a company is very difficult. And despite clearly being the sector leader, its market cap is about 10 times larger than its fast-growing Chinese peers.

In fact, it’s worth less than other car companies, despite the stock price correction, and I’m concerned. For one, I found this difficult to accept because I wasn’t sure it would become the world’s largest car manufacturing company.

Another concern is about slow growth. The company missed its forecast for the fourth quarter of 2022, with 405,000 shipments, compared with 430,000.

And with price cuts in the US and full sales incentives in China, margins will come under significant pressure. Supply-side cost inflation has proven a challenge for most EV companies, especially with lithium battery prices rising.