Why Tesla stock fell sharply on Tuesday

The electric vehicle maker’s shares are worth less than half of where they are trading today, according to one analyst.

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Inside of a Tesla self-driving car

Image source: Tesla

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of Tesla (NASDAQ: TSLA) were hit hard on Tuesday. The stock had fallen about 4% as of 11:45 a.m. EDT.

The stock's decline extends a pullback on Monday, which was fueled by news that the National Highway Traffic Safety Administration has opened a formal safety probe into the electric vehicle maker's driver-assist technology.

Shares were likely down on Tuesday due to bearishness in the overall market and a tough day for many growth stocks like Tesla. In addition, one analyst argued in a note to inventors that the stock is significantly overvalued.

So what

As of this writing, the S&P 500 and the Nasdaq Composite are down 0.8% and 1.1%, respectively, capturing pessimism in the stock market on Tuesday. Many growth stocks like Tesla are down even more sharply.

Meanwhile, Bernstein analyst Toni Sacconaghi told investors on Tuesday that even though the stock deserves a premium valuation relative to other automakers, it is still way too high. He has a 12-month price target for the stock of $300, down more than 50% from where it is today.

Now what

Though Tesla shares likely did get ahead of themselves earlier this year, the company is demonstrating incredible growth and an impressive operating margin. Management expects vehicle deliveries to grow more than 50% this year. Furthermore, the company's second-quarter operating margin was 11%, and management expects to achieve an industry-leading operating margin over time.

Still, investors should take note that the stock's valuation is arguably priced for strong top-line growth for years, as well as significant operating margin expansion.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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