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

Tesla (NASDAQ: TSLA) has captured the spotlight once again with another showstopper of a quarter. Fans may flock to the company's top and bottom-line growth, the continued success of the Model Y crossover SUV, or its timely rollout of new factories in Germany and Texas. But critics may cringe at Tesla's lofty valuation and CEO Elon Musk's erratic behavior on social media and on other public platforms.

Tesla has been, and continues to be, a battleground stock with a riveting bull and bear case. Here's why the electric car stock may or may not be worth considering now. 

A sign of things to come

Howard Smith (Tesla): Tesla shares soared after it just reported results for its 2022 first quarter. While the stock move brings the electric vehicle (EV) leader's already lofty valuation even higher, there are reasons to think it is justified. That valuation is what has kept many investors from buying Tesla stock. At its recent market cap of about $1.1 trillion, the stock has a price-to-earnings (P/E) ratio of 200 based on 2021 earnings. But the most recent quarterly results show why that could still make sense. 

Tesla earned $5.5 billion in all of 2021, and it already has booked net income of $3.3 billion in the first quarter of 2022. The company grew revenue 81% in the first quarter compared to the prior-year period. But it's really the bottom line profitability that should catch investors' attention. 

Tesla reported an operating margin of 19.2%, which shows just how much it stands out compared to traditional automakers. For perspective, while it hasn't announced first-quarter results yet, General Motors (NYSE: GM) reported an adjusted operating margin of just 11.3% for 2021. 

That level of profitability comes in an environment of inflation driving rising raw material costs. Additionally, Tesla has had to overcome the suspension of production at its Shanghai plant due to restrictions implemented to fight the spread of a COVID-19 wave. 

Even with that headwind, CEO Elon Musk said the company could still achieve 60% growth in its year-over-year vehicle deliveries. With its new plants near Berlin, Germany and Austin, Texas just beginning production, there looks to be plenty of growth still ahead for Tesla.

The company has shown it can operate efficiently even as other manufacturers struggle with supply chain constraints and rising costs. The results from the first quarter may just be a sign of things to come for Tesla. Investors with a place in their portfolio for higher risk growth stocks could do well to include Tesla there. 

Tesla keeps demonstrating it is worth a premium price

Daniel Foelber (Tesla): As Howard mentioned, one of the primary reservations that investors have when deciding whether to buy Tesla stock or not is its valuation. And if we know anything about history, hesitating to buy an excellent company on valuation alone is usually a bad idea. Great companies have a habit of growing into their valuation. That hasn't happened yet with Tesla. But there are signs that Tesla could one day be affordable.

One of the common complaints you'll hear about Tesla is that it can never sell enough cars to be worth $1 trillion, let alone grow to a $2 trillion market cap. But the difference between Tesla and legacy automakers is that it's simply a much better business. As Howard said, Tesla continues to sport a high operating margin relative to the industry. Tesla just began delivering vehicles produced from its new factories in Germany and Texas. With those two capital-intensive mega projects now in the past, the full effect of Tesla's profitability is coming into frame.

Tesla's Q1 2022 operating margin of 19.2% resembles a low overhead tech company more so than an automaker. Tesla's profitability is due in part to doing a lot of things in-house and controlling its sales and distribution, which helps it keep costs down and rely less on external suppliers. And even as the company cited supply chain disruptions and higher raw material costs as challenges for the quarter, Tesla's high average selling price and ability to reduce costs largely offset these headwinds. 

Tesla is growing fast and is more profitable than ever, with Q1 2022 revenue up 87% year-over-year (YOY) to $16.86 billion and adjusted diluted non-GAAP earnings per share (EPS) up 246% YOY to $3.22. The run rate for those figures would give Tesla 2022 sales of $67.44 billion and $12.88 in adjusted diluted EPS -- giving it a forward price to sales ratio of 15.9 and a forward price to earnings ratio of 79.2 -- not cheap by any stretch of the imagination.

Tesla is undeniably the best company in the auto industry and could very well accelerate its growth and continue to look like it deserves to be worth a lot more than critiques say it should be. But in terms of being the best stock, I would simply argue that there are better ways to invest in the growth of EVs than solely buying Tesla. If this market has taught us anything, it's that valuation does matter. The risk/reward for Tesla just doesn't seem to be worth it quite yet, especially given some of the amazing growth stocks that are on sale right now.

A compelling success story in a struggling industry

Tesla has always had impressive technology. But over the past few years, it has evolved to become a very well-run and profitable business that continues to earn more revenue, profit, and free cash flow. The biggest advantage that Tesla has over the competition is that nearly 100% of its cash flow gets poured into its core business, while other legacy automakers still have a lot of costs associated with internal combustion engine divisions. Put another way, Tesla can sustain its momentum and outpace the growth of its competition. For that reason, Tesla may be worth considering now for risk-tolerant investors that can stomach volatility. But for everyone else, it's OK to wait too. 

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

The post Tesla stock: Bull vs. Bear appeared first on The Motley Fool Australia.

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

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

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Daniel Foelber has the following options: long May 2022 $705 puts on Tesla and short May 2022 $700 puts on Tesla. Howard Smith has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns 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.

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

On the surface, the stock market appears to be doing relatively well. The Nasdaq, S&P 500, and Dow Jones Industrial Average indices are all down around 5% from their recent highs and are still up big for the year. Look closer, however, and it's clear that the prices of many smaller growth stocks, and even some top-tier companies, are hovering around 52-week lows.

Investors that follow the electric vehicle (EV) industry are probably wondering if the tech sell-off affects growth companies like Lucid Group (NASDAQ: LCID) and Nio (NYSE: NIO). Here's a look at how each company could be impacted.

Lucid is no stranger to skepticism

Daniel Foelber (Lucid): It seems like a distant memory now, but it was only in August and September when share prices of Lucid were struggling to stay above $20 a share as early investors cashed out. The electric vehicle maker spent much of the summer fine-tuning its luxury sedan, the Lucid Air, but failed to mention the date everyone really cared about -- which was deliveries. This period was followed by the company's late September announcement that it had begun mass production, which was followed by its late October announcement that it had begun customer deliveries. These were major milestones that Lucid said it would hit in the second half of 2021. And once it hit them, investors breathed a sigh of relief and gained confidence that Lucid is the real deal, even though its battery technology already showed it was.

In hindsight, the stock price volatility looks rather silly. But uncertainty is a tricky beast that can get the best of both imagination and fear.

What Lucid management did well this year, especially during its Q3 conference call, was set expectations. The company knows that its financial figures will appear paltry for a few years, so it's creating its own yardstick for the market to measure it on. For Lucid, that means setting goals for its cash position, reservations, number of showrooms and service centers, production, deliveries, and manufacturing capacity. Meeting and exceeding expectations in these performance indicators should be enough to keep Lucid's investment thesis alive. But if Lucid incurs delays or falls shot due to unforeseen headwinds, investors may not be so patient. In this vein, Lucid is playing its own game.

No one knows how a stock will move in the short term. But if Lucid continues to deliver on its promises in 2022, then the long-term investment thesis will look even better than it does today.

Heading into a transition year

Howard Smith (Nio): Equity investors can be jittery when news headlines are flying, leading to reactions that are based on bigger-picture assumptions resulting in sector-wide stock moves. Investors need to balance that against what might be due to company-specific information.

Share prices of Chinese EV maker Nio have dropped more than 15% over the past several weeks, and a deeper look seems to indicate the drop was due to a combination of both a sector shift and some short-term news from the company. 

Fears of uncertainty surrounding the economic recovery from the pandemic and the potential spread of the new omicron variant impacted stocks in general in recent weeks. Fast-growing businesses in the tech sector typically get hit hardest when market jitters surface. Nio is one such business, and it has yet to report a profitable quarter. It makes sense that a general sell-off in highly valued stocks is going to include Nio. 

But some company-specific fears were put to rest this week, giving investors a potential opportunity as Nio moves into what should be a transitional year for its business. Last month, Nio disappointed investors when it announced only 3,667 vehicle deliveries in October. That was a decrease of 27.5% year over year. Those results were in sharp contrast to the first nine months of 2021, which showed an increase of more than 150% in deliveries compared to the prior-year period.

But the company returned to that prior growth in November when it delivered a monthly record of 10,878 electric vehicles. The dip in October was mainly due to disruption caused by work to upgrade its manufacturing lines in preparation for both higher volumes and new products. Nio expects to deliver three new products in 2022, including the highly anticipated ET7 luxury sedan. It is also expanding its sales into Europe beginning in Norway, with plans to move into Germany next year. With that backdrop of upcoming growth for the company, investors focused on the long-term can use the recent sell-off to get Nio shares at a discount.

Patience and perseverance are paramount 

Just like other growth stocks, Lucid and Nio are not impervious to volatility. Investors shouldn't expect either stock to go to the moon before each company establishes itself as a long-term market participant.

However, Lucid and Nio both have a lot going for them that should help investors weather the current market storm in case things go south over the short term. If Lucid accomplishes its 2022 goals, it would signal strong demand for its vehicles and mark a major milestone that a new U.S. automaker other than Tesla can compete in the ultra-competitive luxury sedan market. Similarly, Nio continues to prove its mettle against a stout Chinese cohort of competitors and is expanding nicely internationally. For most investors, taking a basket approach by diversifying into multiple EV stocks offers one of the best ways to combat volatility. 

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

The post Does the tech sell-off affect EV stocks like Nio? appeared first on The Motley Fool Australia.

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

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

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