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Tesla Stock: 2022 Is The Moment Of Truth

Tesla stock performed superbly in the past five years. Is this a good sign in the face of multiple headwinds in 2022, or is TSLA ripe for a sharper correction from here?

Has Tesla stock  (TSLA) - Get Tesla Inc. Report been a good investment? It depends on who you ask. So far in 2022, TSLA has been a loser in absolute terms and relative to most equity benchmarks.

However, looking back a few years, this stock has been one of the best performers among large-cap names. The big question is: will Tesla be able to defend its rich valuations in a year of numerous market headwinds? Or is a sharper decline only a matter of time?

Figure 1: Tesla Stock: 2022 Is The Moment Of Truth

Figure 1: Tesla Stock: 2022 Is The Moment Of Truth

(Read more from Wall Street Memes: GameStop Stock: Why Earnings Should Be a Catalyst)

TSLA: impressive performance

Let’s start with the chart below. It shows how, so far in 2022, Tesla stock (blue line) has underperformed the tech-rich Nasdaq 100 and the autonomous/electric vehicle peer group  (DRIV) - Get Global X Autonomous & Electric Vehicles ETF Report. Compared to other high-growth, high-valuation names like those contained in the ARK Innovation ETF  (ARKK) - Get ARK Innovation ETF Report, however, TSLA has done better.

Figure 2: Tesla stock (blue line) has underperformed the tech-rich Nasdaq 100 and the autonomous/electric vehicle peer group DRIV.

Figure 2: Tesla stock (blue line) has underperformed the tech-rich Nasdaq 100 and the autonomous/electric vehicle peer group DRIV.

This is not to say, however, that TSLA has been a bad investment in the past several months or couple of years — quite the opposite, in fact.

This next chart shows how Tesla stock has lavishly outperformed all of the names mentioned above since around the bottom of the COVID-19 bear. The five-year chart (not depicted here) does not look much worse than this.

Figure 3: Tesla stock has lavishly outperformed Nasdaq 100, ARKK and DRIV.

Figure 3: Tesla stock has lavishly outperformed Nasdaq 100, ARKK and DRIV.

Resilience or correction ahead?

There are two ways to interpret recent price action in Tesla stock. The glass-half-full view is that TSLA has been resilient to this year’s selloff. Considering roughly 90% in annualized returns between 2017 and 2021, Tesla’s 28% YTD dip in 2022 has been fairly small by comparison.

Bulls have business fundamentals reasons to think that Tesla will continue to climb from here, given enough time. The electric vehicle industry is expected to grow aggressively in the next several years: CAGR of 23% through 2027, according to one source.

The Russia-Ukraine crisis and spike in crude oil prices could also be a positive for Tesla in the end. Tesla’s products are one answer to the global dependence on hydrocarbons that has caused so much turmoil, including inflationary pressures, in the past few months.

But then, there is the glass-half-empty argument. Tesla stock is still up 77% per year for the past five years, despite all the macroeconomic and geopolitical headwinds. Isn’t it time for shares to de-risk a bit more, as those of so many of Tesla’s peers have since early last year?

Supporting this idea are rich valuations. According to Seeking Alpha, Tesla stock commands a very high 2022 P/E of 73 times on earnings growth that is expected to decline to a fairly modest 15% through 2025. Is this multiple justifiable in the current market environment?

2022 will be the moment of truth

Clearly, it is impossible to tell for sure whether the optimistic or the pessimistic views on Tesla stock will prove to be correct in the end. The remainder of 2022 will be crucial at determining which way Tesla stock will bifurcate.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)