Wait for Tesla Stock to Fall 10%… Then Buy!
At first glance, the first-quarter 2023 results from electric vehicle (EV) manufacturer Tesla (NASDAQ:TSLA) don’t seem all that bad. However, many investors’ initial reaction was to sell TSLA stock. In the wake of this, opinions vary concerning the future trajectory of the Tesla share price. Fortunately, there is a dip-buying strategy that could work well in this situation.
Tesla has faced a number of challenges recently. Gasoline prices have come down after spiking last year, and Tesla tends to benefit from high gas prices. Also, Tesla has faced stiff competition from a slew of EV market upstarts.
However, Tesla’s biggest headwind has probably been elevated inflation, which evidently took a toll on the automaker’s margins. As we’ll see, it’s challenging to decide what to do with TSLA stock now, but there is an approach that’s worth considering.
TSLA Stock Falls After Tesla’s Earnings Release
Tesla implemented no fewer than half a dozen price cuts in response to inflationary pressures. This may have helped Tesla stay ahead of its EV industry rivals. On the other hand, the price reductions were bound to have a negative impact on Tesla’s profit margins.
This helps to explain why TSLA stock declined 9.8% after Tesla released its first-quarter 2023 data. Overall, the company’s results were similar to what analysts had expected. Tesla reported net income of 85 cents per share, in-line with Wall Street’s consensus forecast, on revenue of $23.33 billion, just slightly missing analysts’ expectation of $23.67 billion.
What spooked investors, evidently, was Tesla’s total GAAP gross margin of 19.3%. In the year-earlier quarter, it was 29.1%. That’s quite a fall-off.
Notably, Tesla seems to be backtracking on its price reduction strategy. In particular, the automaker recently raised the base prices of its Model S and Model X vehicles. Only time will tell whether this helps Tesla get its margins back on track.
Will Tesla Shares Go to $28, or $2,000?
There’s a lot of information to absorb here. Personally, I’m still bullish on Tesla, as it’s still a clear leader among automakers that only produce EVs. Not everyone shares my optimism, however.
New Constructs CEO David Trainer envisions TSLA stock dropping around 80% to just $28. Trainer is evidently concerned about fierce competition in the EV market and feels that Tesla is “one of the most overvalued” companies in the sector.
Tesla’s trailing price-to-earnings (P/E) ratio may be higher than the sector median, but at least the company is profitable. A number of EV startups don’t even have a P/E ratio because they have no earnings at all.
So, I hesitate to call Tesla “overvalued.” Yet, I also wouldn’t go as far as ARK Invest CEO Cathie Wood, who apparently sees TSLA stock reaching $2,000 in 2027. ARK’s analysis depends, to a large extent, on the success of Tesla’s upcoming robo-taxi launch. I’m not currently willing to venture a guess as to how successful Tesla’s robo-taxi venture, which hasn’t even launched yet, will be in four years.
What You Can Do Now With TSLA Stock
It’s entertaining to read about people’s extreme views on Tesla. However, you don’t have to let them influence your investment decisions. You can acknowledge that Tesla’s profit margins have fallen, while at the same time envisioning a possible recovery for the EV giant.
So, here’s what you can do: Place a limit order to buy TSLA stock below the current share price. That way, you can get a low price if the dip gets deeper. My preference is 10% below the current Tesla share price, but it’s up to you to decide how low you want to go. And if your buy order never gets filled, it’s not the end of the world, as there will always be other opportunities.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
