The Tesla (NASDAQ:TSLA) share price has had a bit of a bumpy ride over the past month. In fact, since the start of November, the US stock has fallen by around 20%. While the 12-month return is still an impressive 51%, it does beg a simple question. Now that Tesla is trading below $1,000, is it a buying opportunity for my portfolio? Let’s take a closer look.
A thriving electric vehicle business
Despite what the falling Tesla share price would suggest, the company continues to storm ahead. Fuel shortages and rising oil prices further increase consumer interest in owning an electric vehicle. Meanwhile, improvements in battery technology have drastically improved the range capabilities. And businesses seeking to lower their carbon footprint are starting to upgrade their vehicles fleets.
This has created quite a favourable environment for Tesla to thrive in. And looking at its latest third-quarter earnings, revenues continue to grow at impressive double-digit rates. Moreover, thanks to improvements in operational activities, profit margins are also getting wider.
Needless to say, this is all quite positive. And it seems to be the primary driver behind Tesla’s impressive share price momentum since the start of 2020. But if that’s the case, then why is the stock falling now?
Is Tesla’s share price too high?
With a CEO as influential as Elon Musk, it’s easy to understand how investors could be getting a bit too excited. As such, the valuation has reached some pretty absurd levels, with enormous expectations built into it. Even after the recent tumble, the stock still trades at a price-to-earnings ratio of over 300. And while the group may not be optimised for profits at the moment, its price-to-sales ratio still stands at a lofty 19 times.
While some investors may passionately disagree with that conclusion, it seems management doesn’t. Several board members have begun selling off some of their shares in multi-million-dollar deals. That includes Musk, who sold $8.8bn of Tesla shares in November. And just yesterday, he sold a further $906.5m of his stake in the business.
Generally, seeing insiders sell this much stock indicates they believe the shares are overvalued. But now that the price has fallen, should I consider adding this business to my portfolio?
Time to buy?
All things considered, Tesla continues to impress me with its progress over the years. However, even after the recent 20% drop, I still believe the Tesla share price is being inflated by over-optimistic investors.
Therefore, if the company starts to show any sign of a slowdown or potential weakness, the share price could be in for some serious volatility. Personally, I’m not interested in adding that risk to my portfolio. So, I’ll be keeping this company on my watchlist until a better price emerges.
Zaven Boyrazian 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.
