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Yesterday, Tesla (NASDAQ:TSLA) shares dipped below $1,000 for the first time this month. From the highs of $1,222 seen a month ago, this meant that the shares had fallen by 20%. This technically puts the stock in bear territory, which could indicate that there’s further room for the share price to move lower in coming weeks. Here are a few reasons that could drive this move lower.

Valuation concerns

In my opinion, one of the main reasons for the 20% correction and the potential for more is the valuation. I wrote about my unpopular opinion back in late October when Tesla shares broke above $1,000 for the first time. When I look at traditional valuation metrics such as the price-to-earnings ratio, it just seemed too stretched.

Back then, the P/E ratio stood at 332. To put this in perspective, the average FTSE 100 P/E over the past couple of years has been around 15. Granted, stocks within the NASDAQ index have higher P/E ratios given the weighting to tech stocks. Yet it was still a red flag to me when considering potential investment options.

I think that some investors are uncomfortable holding shares with this high a ratio, hence the correction lower. Now that the price is moving down, it can become a spiral as others realise that they might have bought based more around speculation than fundamental value. This could trigger more selling.

More exciting alternatives to Tesla shares?

Another reason why I think Tesla shares could continue to drop is due to more EV investing options being available elsewhere. Tesla is no longer the star of the EV market in my opinion. Both Rivian and Lucid Motors have gained a lot of attention in recent months. These companies are nowhere near the production levels of Tesla, but this early stage could actually attract more investors.

Being able to buy shares at the beginning of the journey as a public company could offer higher rewards in years to come. So I think Tesla shares are perhaps becoming a less attractive option for people seeking exposure to the EV market.

Risks to my view

In the short term, Tesla shares took a hit yesterday from a report that the SEC has opened a case on the company regarding whistleblower complaints. We’ll have to see how this plays out. But I think that the above two reasons are more structural points to suggest that the share price could continue to fall.

I could be wrong here in my view. I’ve been bearish on Tesla shares for over a year, but the share price is up 55% over a one-year period. Speculative flows can keep a share price elevated for longer than I might expect. Further, Tesla is now a profitable company, so strong results looking forward could reduce the elevated P/E ratio.

But I won’t be investing in Tesla shares any time soon. However, I am positive on Rivian shares, so I do see value in the EV market in general.

Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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Shares of Royal Mail Group (LSE:RMG) are among the most popular stocks to own in the UK. In fact, just 10 financial institutions have almost 40% of all the outstanding shares on their books. But is this vast popularity reflected in the share price performance? Or should I be looking elsewhere for lucrative investment opportunities?

A closer look at the performance of Royal Mail shares

Similar to my recent dive into Lloyds, Royal Mail shares have delivered pretty underwhelming results, despite their popularity. Over the last five years, the stock has only generated a return of around 11%. That’s the equivalent of an annualised gain of 2.7%, barely beating inflation, meaning a £1,000 investment in December 2016 would now be worth around £1,110.

That’s still better than the disappointing -3% yielded by the FTSE 100 index. And when including the additional income generated by dividends, Royal Mail’s performance does improve. But not enough to satisfy my wealth-building expectations. So, what happened?

From what I can tell, the company grew somewhat complacent over the years, allowing other logistic fulfilment and delivery businesses to steal market share. With its letter delivery division slowly losing steam, its parcel segment left underdeveloped for quite some time, Royal Mail shares have unsurprisingly suffered.

Having said that, management finally seems to be taking action. With increased investments into new logistics centres, e-commerce fulfilment, and international expansion, the stock looks like it could be at the start of a comeback. But with an elevated level of debt on the books, is there a better company for me to invest in?

A future king of online shopping delivery solutions?

There are plenty of parcel delivery firms serving the e-commerce industry today. And most are pretty similar, with no major discernible advantage beyond the size of operations. That’s why Clipper Logistics (LSE:CLG) has caught my attention.

Instead of offering a bog-standard parcel delivery service, the company takes it one step further to provide a complete order fulfilment ecosystem. That means beyond handling delivery, the group offers returns management, inventory tracking, warehousing, and a plethora of other support services uniquely designed for each of its customers.

As such, retailers can focus entirely on developing and selling their products, while Clipper Logistics handles everything related to getting those products into customers’ hands. And this solution has proven to be immensely popular when looking at its client list. Halfords, ASOS, and Morrisons are among many leading businesses letting Clipper handle all their order fulfilment needs. So, I’m not surprised to see the share price jump more than 80% over the last five years.

That’s nearly eight times more than Royal Mail shares have managed to deliver. But it’s not without its risks. As it charges its customers on a usage basis, an economic downturn could significantly affect the revenue stream. After all, if consumers start saving instead of spending, the need for Clipper’s services will naturally start to fall. But given what the company has managed to achieve so far, that’s a risk I’m willing to take for my portfolio.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Clipper Logistics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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Building a passive income can be quite a challenge. Fortunately, the stock market is an easy-to-access method of doing just that. Dividends can be lucrative for investors. And the idea of simply receiving money for doing nothing but holding shares in a business is quite an attractive proposition.

There are plenty of UK shares that offer this possibility. But like anything in life, nothing is risk-free. Companies that find themselves in financial difficulties can easily decide to cut or even cancel dividends outright. And such decisions are usually paired with a substantial decline in the share price. In other words, just because a stock offers a dividend doesn’t mean it’s a reliable source of passive income.

That’s why, when I’m looking to bolster my income portfolio, I’m specifically looking for businesses that have strong financials, as well as room to grow, so that dividends can scale up over time. With that in mind, I’ve spotted shares of one UK firm that I believe meet these criteria.

Solving one of e-commerce’s biggest problems

The ongoing transition to online shopping accelerated as Covid-19 forced everyone to stay at home last year. Many non-essential retailers quickly doubled down on expanding their e-commerce offerings. But with such a sudden spike in activity, a serious problem emerged for businesses selling physical goods. I’m talking about the UK’s short supply of warehouse space.

Relatively speaking, the construction time of a new warehouse isn’t that long. However, acquiring land near a central logistics hub has become increasingly challenging, causing well-connected warehouse property values to climb considerably. And with inflation creeping into the economy, this trend appears to be accelerating.

For online retailers, that’s not fun. But for Warehouse REIT (LSE:WHR), it’s a dream come true. As the name suggests, this firm buys, rents and sells warehouses primarily for the e-commerce industry. And it returns the bulk of its profits to shareholders through dividends, generating a sizable stream of passive income.

At today’s share price of £1.66, the dividend yield sits at around 3.7%.  That hardly makes it the highest yielding stock out there. But dividends have actually increased annually by an average of 50% over the last three years. Assuming the firm can continue delivering this impressive payout growth, Warehouse REIT could be an essential piece in building a passive income through the stock market.

Becoming a landlord to build passive income isn’t risk-free

By investing in Warehouse REIT, I’m effectively becoming a landlord who doesn’t have any responsibilities. That certainly sounds more enticing than pursuing a buy-to-let strategy. And it’s one of the reasons why I’m tempted to add the stock to my portfolio. But there are some caveats.

The rising demand for warehouse space hasn’t gone unnoticed by the rest of the industry. And the firm has a pretty long list of competitors. Consequently, bidding wars on properties are becoming more commonplace. As such, it’s possible management could either start missing out on opportunities or begin overpaying for new locations. Either way that doesn’t bode well for the longevity of shareholder dividends. And it potentially compromises my potential passive income stream. Therefore, this is something I’ll be watching closely.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Warehouse REIT. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Shanta Gold (LSE: SHG) share price is down by more than 20%, as I write, after the Africa-based gold miner warned that 2021 production would be up to 15% lower than expected. Shanta shares have now fallen by nearly 40% over the last 12 months.

Today’s fall was triggered by news of technical issues at its New Luika gold mine in Tanzania. These have now been fixed, according to CEO Eric Zurrin. My sums suggest that if Shanta’s 2022 forecasts remain unchanged, this stock could be seriously cheap after today’s crash. Should I consider buying Shanta Gold shares for my portfolio after today’s crash?

What’s gone wrong?

Gold production at Shanta’s flagship New Luika mine has been held back during the fourth quarter by two technical issues. The company says it’s experienced “operational difficulties” relating to supplies of an “unreliable emulsion product” and problems with underground charging units.

According to chief executive Zurrin, emulsion supplies are back to normal, and the charging units have now been fixed.

Unfortunately, these issues forced the company to temporarily change its mining schedule to focus on less productive areas of the underground mine. As a result, Shant’s 2021 gold production is now expected to range 55,000-57,000 ounces this year. This compares to previous guidance in August for 60,000-65,000 ounces.

Why I think Shanta could be cheap

Today’s news is disappointing, but it doesn’t sound too serious to me. 2021 was always expected to be a transitional year for Shanta Gold, with much lower profits than in 2020.

However, 2022 forecasts suggest a strong recovery in earnings. Ahead of today, broker consensus estimates for next year suggested Shanta could generate a net profit of $18.6m in 2022. That’s equivalent to forecast earnings of $2.1 cents per share. At Shanta Gold’s current share price, I estimate that this would price the stock at just six times 2022 earnings.

It’s too soon to be sure, but based on today’s announcement, I don’t see any reason why 2022 forecasts should be cut. If I’m right, then I can see some potential value here, especially as Shanta’s financial position remains strong, with around $20m of net cash and available resources.

Should I buy now?

Shanta has several interesting exploration projects underway but, at the moment, all the company’s revenue comes from the New Luika mine. This means any disappointment here can have a big impact, as we’ve seen today.

One concern for me is that Shanta’s gold production also fell during the first half of this year. This was caused by lower quality ore containing less gold than in 2020. Today’s disappointment adds to this shortfall.

After such a difficult year, I’m not sure how confident I can be in forecasts for 2022. More problems might lie ahead. Although I can see some attractions at Shanta Gold, the situation feels too speculative for me.

For this reason, I won’t be buying Shanta shares today. However, I will keep watching for further news.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Vodafone (LSE: VOD) share price has continued to underperform the market over the past few weeks. The stock registered a small bounce between the beginning and last week of November, but it has since resumed its decline.

Following this performance, shares in Vodafone have fallen 14%, excluding dividends over the past 12 months. By comparison, the FTSE All-Share Index has returned 13% over the same timeframe. This implies that the stock has underperformed the broader market by 27%, excluding dividends. 

Vodafone share price drop 

Shares in the company dropped in November after it reported its fiscal first half 2022 results. The figures showed a 22% decline in operating profit, although overall group service revenue increased by 2.8%. Cash generated by operating activities increased 7.4% in the period. 

These numbers were not particularly inspiring. Operating profit slipped due to higher capital spending costs and a lack of lucrative roaming fees. Free cash flow generated by operating activities also collapsed. 

The company’s adjusted free cash flow for the period totalled €23m, down from €451m in the prior-year period. Net debt increased by 0.9% to €44.3bn.

According to the corporation, cash flow will be weighted to the second half. Management is guiding for adjusted free cash flow of €5.3bn for the current financial year. 

If Vodafone hits this projection it may be able to make a dent in its debt pile, which is one of the company’s biggest challenges. Management is focusing on getting debt under control and has been selling off assets to try and streamline the business. 

Until the company can make a material dent in its debt mountain, I think the market will continue to give the business a wide berth. Without a strong balance sheet, Vodafone may struggle to make the investments required to stay ahead of its competition.

The firm may also have to cut its dividend if it suffers a sudden decline in profitability, as paying off debt holders is far more important than rewarding shareholders. 

Challenging outlook 

Put simply, it looks as if the market is avoiding the Vodafone share price because of the company’s weak balance sheet and declining profitability. 

If the organisation hits its free cash flow targets for the year, it may be able to reduce debt, and this could help improve investor sentiment. As the economic recovery starts to gain traction, the company’s profits may also recover, which would only enhance investor sentiment further. 

As such, I am cautiously optimistic about the outlook for the Vodafone share price. That is why I would buy the stock as a speculative position for my portfolio today.

If the company can capitalise on the economic recovery, reduce debt and cut costs, earnings will recover, and the market may rerate the stock to a higher growth multiple. On the other hand, if the group continues to struggle, the stock may continue to underperform the market.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

At first glance, it might look as if the JD Sports (LSE: JD) share price has crashed in the past few weeks. The stock has plunged from around 1,100p to 225p at the time of writing. 

However, this is nothing more than a cosmetic change. At the beginning of October, management recommended what is known as a share split. The company issued five new shares for every existing share, splitting the stock to reduce the share price. 

In theory, this has not had an impact on individual shareholders. The value of the business remains the same. It is just the number of shares outstanding that has changed. And with each investor being given five new shares for every existing share, each shareholders’ percentage claim on the underlying business has not changed. 

When it announced the decision to split the stock, management noted that the resulting smaller share price would increase the “efficiency” of trading and “improve the liquidity and marketability of the company’s shares.“

Put simply, the JD Sports share price has become easier for investors to trade. There has been no impact on the underlying business. 

Booming sales 

According to the company’s latest trading updates, sales and profits are growing rapidly. The group reported a record result for the first half of its financial year, with revenue totalling £3.9bn, up from £2.5bn last year. Profit before tax jumped to £365m, up from £42m in the prior-year period. 

And JD has plenty of capital to push forward with its growth ambitions. It had a net cash position on the balance sheet of just under £1bn the end of July 2021. 

Management is investing heavily to boost the group’s international and local footprint. Much of the investment is going into enhancing logistics networks, with significant leases signed on new warehouse facilities this year. 

Despite the company’s breakneck growth, management is maintaining a conservative stance. The organisation is wary of additional pandemic trading restrictions, which is why it is hoarding cash. The threat of disruption from e-commerce is also driving the group’s heavy investments in infrastructure and logistics facilities to improve customer service and streamline the fulfilment process. 

The outlook for the JD Sports share price 

Despite these risks and challenges, I believe that the JD Sports share price looks attractive at current levels. The company is one of the most successful UK retailers, and its investment initiatives suggest that the business is not going to slow down any time soon.

I am also encouraged by the company’s strong balance sheet. Many retailers have collapsed in the past due to high levels of borrowing. It does not look as if JD is going to make the same mistake. 

As such, I would be happy to buy the stock for my portfolio today as a growth play. As the economic recovery continues, I think the corporation will continue to report rapid revenue growth. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.