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

Contrary to popular belief, the metaverse is not a new notion. The term was coined by bestselling author Neil Stephenson in his science fiction novel Snow Crash all the way back in 1992. That said, there's no doubt that the concept has been generating more headlines of late as a host of businesses race to cash in on this idea of a persistent 3D virtual world backed by technologies including virtual reality (VR), augmented reality (AR), artificial intelligence (AI), and blockchain.

Generally speaking, investors tend to view metaverse-centric companies such as Roblox Corporation (NYSE: RBLX) and Unity Software as riskier investments, but there are some exceptions. Let's have a look at two safer stocks that offer investors a great chance to profit from the creation of the metaverse. And by safe, I mean these companies are already strongly profitable and cash-flow positive, but still have tremendous upside potential in the metaverse arena.

1. Nvidia 

Nvidia's (NASDAQ: NVDA) graphics processing units (GPUs) and system-on-a-chip products are widely relied upon for gaming and 3D simulation, cryptocurrency mining, and the development of other business applications, many of which will be foundational to the metaverse. Likewise, its on-the-rise NVIDIA Omniverse platform has a chance to revolutionize the world as we know it. In essence, Omniverse is a platform designed for 3D real-time simulation and design collaboration. For example, BMW Group has used the platform to design a future car factory, creating and simulating an exact "digital twin" of the facility. Between Nvidia's hardware and its Omniverse platform, it's one of the companies with the most potential upside in the metaverse.

In its fiscal 2023 first quarter, which ended May 1, Nvidia's total sales soared 46.4% year over year to $8.3 billion, and its adjusted earnings per share increased 49.5% to $1.36. On the profitability front, its adjusted gross and operating margins expanded by 90 and 255 basis points, respectively, to 67.1% and 47.7%. During the quarter, the tech giant also generated $1.4 billion in free cash flow, bringing its total over the past 12 months to $7.9 billion. As of the end of the quarter, Nvidia had $20.3 billion in cash and marketable securities on the books. For the year, Wall Street analysts expect the company's revenues and earnings to climb by 23.9% and 20.3%, respectively, to $33.3 billion and $5.34 per share.

Those are rock-solid growth rates, and given that its shares have plunged by 36% since the start of 2022 and its current price-to-earnings ratio of 50.9 is well below its 5-year average of 59.0, Nvidia appears to be a smart investment today. 

2. Meta Platforms

As evidenced by its name change from Facebook to Meta Platforms (NASDAQ: META), this company is fully committed to its metaverse transformation. The social media giant's Reality Labs business segment is focused on developing VR and AR hardware and software, such as its Oculus Quest 2 headset, in addition to other metaverse platforms like Horizon Worlds. In the second quarter, Meta's research and development spending rose by 42.6% year over year to $8.7 billion as it continued to ramp up its investments in the space. Meanwhile, Reality Labs booked a $2.8 billion operating loss, wider than its $2.4 billion loss in the same quarter a year ago.

It will take time for the company's metaverse plans to come to fruition, but investors shouldn't fret. The social media king has $40.5 billion in cash and marketable securities on the books, and has generated $35.8 billion in free cash flow over the past year. And its revenue from advertising -- the backbone of its business -- totaled $28.2 billion in the quarter, equal to 98% of total sales.

In short, Meta is well-funded to further its metaverse ambitions, all while enjoying a steady stream of income from its world-class ad business via its Facebook platform. Today, the Facebook platform boasts 2.9 billion monthly active users, equal to more than one-third of the global population. And similar to Nvidia, Meta has had a rough year in the stock market up to this point. Its shares have fallen by about 50% since the beginning of 2022. That has dragged its price-to-earnings ratio down to an all-time low of 13.6, well below its five-year average of 27.9. 

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

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Luke Meindl has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms, Inc., Nvidia, and Roblox Corporation. The Motley Fool Australia has recommended Meta Platforms, Inc. and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

E-commerce stocks aren't getting much love these days. The ProShares Online Retail ETF is down 59% from highs set in February 2021. E-commerce giant Amazon (NASDAQ: AMZN) has done better a bit better but still has seen its stock price drop into correction territory. Shares of the tech giant are down 24.5% from all-time highs set last summer. Compare that with the 20.3% drop in the tech-focused Nasdaq-100, and you'll see that investors are wary of tech growth stocks and the e-commerce sector specifically.

Amazon reported its second-quarter earnings on July 28, giving investors an update on the direction of its business moving forward in this volatile time. Let's review the tech behemoth's existing situation and see if it offers any clues on whether Amazon stock is a smart investment today.

After e-commerce blossomed at the start of the pandemic, a reopening economy has brought more consumers back into brick-and-mortar stores, putting pressure on online shopping platforms. And while Amazon has diversified its business over the years through categories like Amazon Web Services (AWS), Amazon Prime, and digital advertising, the company's top line is still largely dominated by online retail.

How goes it for the e-commerce leader?

In its latest quarter, Amazon's top line overall sales climbed 7.2% year over year to total $121.2 billion. On the bottom line, Amazon reported a rare net loss of $0.20 per share, marking the second consecutive quarter of being in the red. As is the case with many other e-commerce companies at the moment, the primary cause of the loss was ongoing macro headwinds, including high inflation related to sharp rises in fuel, energy, and transportation costs.

Sales in Q2 from Amazon's e-commerce segment fell 4.3% year over year to $50.9 billion. E-commerce sales account for about 42% of total sales for the quarter. The drop can partially be attributed to tough comparisons to a strong Q2 in 2021. Even so, growth for the e-commerce leader was uneven, and it'll likely take an improvement in the economic environment for Amazon to get growth levels back to their five-year norms. 

Its closely watched Amazon Web Services cloud platform saw sales surge 33.3% to $19.7 billion, while its subscription services and advertising services categories expanded 10.1% and 17.5%, respectively, up to $8.7 billion and $8.8 billion. It was a pleasant surprise to see its advertising segment perform so well, given that ad-driven tech companies like Snap and Meta Platforms have struggled of late.

For the full fiscal year, Wall Street analysts expect the company's total revenue to increase 10.6% year over year to $519.5 billion, and its earnings per share to decline a whopping 80.9% to $0.62. In fiscal 2023, which is when year-over-year comparable metrics will come back to earth, analysts are forecasting top- and bottom-line growth of 15.8% and 303.2%, respectively.

Amazon management wasn't inclined to offer an update of full-year guidance with this latest report, but it did discuss what it expects for the third quarter. Management said net sales in Q3 would total $127.5 billion at the midpoint and grow 15% compared to Q3 2021. The guidance was tempered by concerns about unfavorable foreign exchange rates. Operating income is expected to be positive and hit $1.75 billion at the midpoint, compared with $4.9 billion in Q3 2021. This guidance doesn't account for business acquisitions, restructurings, or legal settlements, including the just-announced acquisition of Roomba robot vacuum maker iRobot for roughly $1.7 billion. 

What should investors do?

For investors with extended time horizons, Amazon stock remains a fail-safe long-term bet. Whenever the market falls out of love with a best-in-class stock, smart investors should interpret that as a clear buying opportunity. That's what we're watching unfold these past few months with Amazon -- the e-commerce company has confronted a string of headwinds, all of which are primarily short-term in nature. Hence, long-term investors can profit from this current sell-off by accumulating shares of the e-commerce leader today. 

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

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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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Luke Meindl has no position in any of the stocks mentioned.  John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Shares of the leading search engine operator, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), have hit a roadblock, falling 23% since the start of the year. The company will undergo a 20-for-1 stock split on Friday, July 15, with the aim of making its shares more affordable and alluring to retail investors. Of course, it's important to note that stock splits have absolutely no effect on the market value of a company.

When companies initiate stock splits, the number of outstanding shares increases and the price per share decreases. This occurs proportionately so that the market capitalization of the company remains unaltered. On that note, investors shouldn't get distracted by Alphabet's upcoming stock split; instead, they should focus on the company's fundamentals to determine whether to buy the stock. So is Alphabet a worthy investment right now.

Smooth sailing for Alphabet's business

Business is solid for the search engine giant. In its opening quarter of the year, the company's total revenue surged 23% year over year to $68 billion, and its diluted earnings per share fell 6.4% to $24.62. Although Alphabet's business was strong on all fronts, the Google Cloud segment performed particularly well, with revenue rocketing 43.8% to $5.8 billion. Both its gross profit margin and operating profit margin remained steady year over year at 43.5% and 29.5%, respectively.

For this fiscal year, analysts expect Alphabet's top line will expand 15.3% year over year to $297 billion, but see its bottom line pulling back 1.3% to $110.77 per share. In 2023, which is when comparable metrics should be more favorable, Wall Street projects total revenue will climb 15% to $341.5 billion, with earnings per share increasing 18.6% to $131.40. In an economy brimming with uncertainty, these are encouraging growth rates and certainly impressive metrics for a company of Alphabet's size.

What makes Alphabet a phenomenal investment at the moment is its exceptional balance sheet and ability to generate cash at a rapid clip. The search engine operator boasts $20.9 billion in cash and cash equivalents, and it generated a jaw-dropping $69 billion in free cash flow (FCF) over the past 12 months. The company's first-class balance sheet and cash flow generation provide a major safety net in the event of a recession, so much so that investors won't need to worry about Alphabet's ability to ride out any economic storm. And as icing on the cake, the stock's 20.1 price-to-earnings multiple is below its five-year average of 32.4.

Don't worry about the stock split

Don't pounce on Alphabet just because of its upcoming stock split. Instead, consider buying shares of the tech giant because it operates a wonderful business and now trades at a discounted valuation. Have no fear of the ongoing market sell-off, either, as corrections often lead to phenomenal long-term investments. And given Alphabet's persistent operational success, elite balance sheet, and unrivaled cash flow generation, the company appears to be a no-brainer at existing price levels. 

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

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

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Luke Meindl has no position in any of the stocks mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Tesla (NASDAQ: TSLA) stock has been underwater in recent memory. Shares of the electric vehicle (EV) giant have been down 45% since the start of 2022. This has led to very polarizing views of the stock, with the bulls insisting that now is the perfect buying opportunity and the bears alleging that the sell-off has just begun.

As many different factors continue to affect the stock market, it'll be extremely interesting to watch the next few months pan out. Will Tesla bounce back in the second half of the year, or is the Elon Musk-led business bound for darker days?

Here is one reason to pull the trigger on the EV stock and two reasons to look the other way for now.

Buy Tesla because business has never been better

Don't get it twisted -- the EV leader's business is thriving today. In the first quarter of 2022, total revenues soared 81% year over year to $18.8 billion, and adjusted earnings per share (EPS) crushed Wall Street estimates by 42%, surging 246% to $3.22.

To put the cherry on top, its business is becoming increasingly profitable, with its GAAP (generally accepted accounting principles) operating margin expanding 1,349 basis points year over year to 19.2%. Although supply chain bottlenecks persisted in disrupting the industry as a whole, production and deliveries still grew at a rapid clip. Total production climbed 69% to 305,407, and total deliveries rose 68% to 310,048.

If Wall Street analysts are on par with their assumptions, then the next two years appear bright for the EV juggernaut. In fiscal 2022, analysts project total sales and adjusted earnings per share to grow 59% and 79% year over year, up to $85.6 billion and $12.11, respectively.

Next year, the company is projected to expand its top line by 36% to $116.4 billion, and its bottom line is estimated to increase 32% to $15.95 per share. Combine these surefire growth rates with Tesla's $17.5 billion in cash on its balance sheet and $2.2 billion in free cash flow (FCF) generation in Q1, and investors can be confident about the company's business trajectory moving forward.

Keep your distance because of macro conditions and valuation

Before buying shares of the EV leader, there are several pitfalls to be aware of. For starters, the current economic backdrop does not offer an ideal scenario. Record-high inflation has caused the company to increase its car prices across the board, making them less affordable than before.

Likewise, supply chain restraints are expected to limit production for the foreseeable future, and there's always potential for more factory shutdowns if COVID is to get out of hand. Coupled with the war in Ukraine, which has added just another layer of pressure on the stock market, and CEO Elon Musk's latest Twitter-related headlines and it's clear that there are many moving parts that could weigh down Tesla stock in the coming days. 

Despite its latest pullback, the EV stock still isn't trading at an optimal valuation. Tesla's price-to-sales and price-to-earnings (P/E) multiples are the lowest they have ever been but the story changes when comparing its valuation to other automobile manufacturers. Today, the EV king is trading at 53.8 times forward earnings, representing a huge premium to traditional car makers Ford and General Motors, which currently peg forward price-to-earnings multiples of 6.3 and 4.8, respectively. Thus, it looks like those who want a piece of Tesla's growth story will have to pay a rich price for the stock today.

Long-term investors should jump on Tesla today

It's never a good idea to try to time the stock market. It's certainly a possibility that near-term headwinds push Tesla's stock price lower in upcoming trading sessions, but the company's fresh pullback presents investors with a unique buying opportunity.

And while it's true that the stock trades at towering valuation multiples compared to traditional auto companies, it's important to remember that Tesla enjoys superior growth rates and exceptional commercial prospects in the long run. Plus, the stock has historically been successful in growing into its lofty valuation levels, and I don't think that'll change in the years to follow. Investors should cash in on the market's madness today by accumulating shares of the world's number-one EV enterprise.

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

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

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Luke Meindl has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla and Twitter. 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 Scott Phillips.

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

The stock market is having a very lackluster 2022 so far. The S&P 500 has contracted 13% since the start of the year, and the Nasdaq Composite, which is heavy with technology stocks, which can be more speculative, has toppled 23% in the same time frame. Equities continue to battle an unfavorable economic and geopolitical environment that includes 40-year high inflation, higher interest rates, and concerns about the war between Russia and Ukraine. 

Even some of the world's star companies, like Apple (NASDAQ: AAPL), have been wounded by the current macro climate. The iPhone maker's business has held up very nicely compared to other big tech companies like FAANG counterparts Netflix and Meta Platforms, yet the stock has been punished, sinking 18% year to date.

Let's discuss Apple's bull and bear case to help investors decide if they should add the stock to their portfolios now.

What's looking good?

Unlike many of its technology peers, Apple's business hasn't seemed to suffer from the macro headwinds. In its second quarter of 2022, which ended on March 26, the company beat analysts' estimates for both revenue and earnings. Both total sales and diluted earnings per share grew 8.6% year over year in the quarter. The tech giant's products segment, which represented 80% of total revenue, had a very strong outing during the quarter, as each product category, excluding iPad, experienced sales growth year over year. The products segment includes iPhone, Mac, iPad, and wearables, Home, and accessories.

Apple's services segment, which includes the App Store, Apple Music, Apple TV+, iCloud, and other subscription businesses, expanded at a rapid clip once again in the most recent quarter. Its total sales were nearly $20 billion, equal to 17.3% growth year over year, and the segment's gross margin expanded 254 basis points to 72.6%. Steady expansion from its products segment is a plus, but the company's growth trajectory is highly dependent on its services category. Fortunately for Apple and its shareholders, the company's $28.1 billion in cash and cash equivalents provides more than enough funding to develop this business further.

The latest sell-off has also soothed the tech leader's valuation. At the start of the year, the company was trading around 30 times earnings, which is notably higher than its five-year mean price-to-earnings (P/E) multiple of 23.1. Today, however, the stock has a P/E of 24.1, which represents a much more reasonable valuation. 

What's keeping investors away?

Boasting a market capitalization of $2.4 trillion, Apple is an enormous company, which in turn limits its ability to grow like it once did. Analysts expect the tech juggernaut's top line to reach $394 billion in fiscal year 2022, indicating 7.7% growth year over year, and its bottom line to increase 9.4% to $6.14 per share. In 2023, Wall Street projects total revenue to climb just 5.6% to $416.2 billion and earnings per share to ascend 6.8% to $6.56. 

While the stock's P/E has dropped to around 24, one could argue that there are more attractively priced stocks out there when considering growth rates. For instance, its fellow FAANG peer Alphabet is currently trading at 21.2 times earnings while projected to grow its bottom line by 18.7% in 2023, according to Wall Street analysts. With expectations that growth will continue to slow for Apple moving forward, it's not unreasonable to assume that certain investors will eventually fall out of love with the stock. And provided its subpar dividend yield of only 0.60%, the company may not be able to attract dividend and value investors, either.   

I believe in the long-term picture

In today's sagging market, Apple extends investors a valid buying opportunity. Its resilient business model, extraordinary balance sheet, and lower P/E serve as compelling reasons to buy the stock right now. Despite its slowing growth, I believe the company will continue to deliver market-beating returns in the long run. It's time to take advantage of the stock market's shortsightedness by accumulating shares of this tech giant today. 

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

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

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Luke Meindl has positions in Apple. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Apple, and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Uncertainty has been the name of the game recently, as the stock market continues to face an immense amount of pressure from high inflation, rising interest rates, and economic impacts linked to the war between Russia and Ukraine. It comes as no surprise that technology stocks have been particularly humbled, with the Nasdaq Composite slipping almost 25% since the start of the year.

Some of the world's paramount tech companies like Netflix and Meta Platforms have delivered weak financial reports in recent quarters as the technology sector as a whole tries to navigate unfavorable macroeconomic conditions. Apple (NASDAQ: AAPL), however, is one of few companies that has sustained strong operational success in the past few months. In a market full of uncertainty today, the technology juggernaut offers investors an ideal investment opportunity. I think the great Warren Buffett would agree as well -- the iPhone maker currently represents 40% of his Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) investment portfolio.  

Resiliency at its finest

Apple alleviated some investor unease by reporting an in-line Q2 2022 report. In the past twelve quarters, the tech leader has now beat earnings estimates each time and has only missed on revenue forecasts once, highlighting management's strong visibility of the business. Total revenue and earnings per share (EPS) both increased 8.6% year-over-year, up to $97.3 billion and $1.52, respectively, and operating margin remained stable from a year ago at 30.8%. 

The company has a fantastic one-two punch with its products and services business segments. While its products business -- which includes the iPhone, iPad, Mac, wearables, Home, and accessories -- increased a moderate 6.6% year-over-year to $77.5 billion, the company's services segment -- which comprises Apple Music, AppleTV+, the App Store, iCloud, and other subscription services -- surged 17.3% to $19.8 billion. 

Apple is well-positioned for future growth given its stable products segment and the untapped potential of its services business, which continues to make headway quarter after quarter. For the full year, Wall Street analysts project the company's revenue to climb 7.7% year-over-year to $394.0 billion, and its EPS to rise 9.4% to $6.14. I think Apple's steady growth in the wake of gloomy economic conditions, combined with its $28.1 billion in cash and cash equivalents, make the technology giant a no-brainer today. And fortunately for investors, the broader market sell-off has pulled Apple's stock price down with it, making the company's valuation attractive at the moment. 

Apple's valuation has normalized 

Apple's share price has fallen 19% year-to-date, making its valuation much more attractive than what it was at the start of the year. The stock currently sports a price-to-earnings multiple of 24, which is largely in line with its five-year average of 23. But unlike many of its technology counterparts, the company's valuation has shrunk in spite of maintaining success on the business front. Thus investors with lengthy time horizons can exploit the ongoing sell-off by purchasing shares of Apple at current valuation levels.

AAPL PE Ratio data by YCharts

I like Apple today

Apple is among the few technology companies that have continued to deliver strong financial results recently. Even still, the stock has been punished by investors, leaving it down almost 20% since the beginning of 2022. I believe investors should take advantage of the unjustified sell-off by accumulating shares of Apple stock today. The company's business is in wonderful condition, and I feel its robust balance sheet and cash generation make it a very stable investment right now. 

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

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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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Luke Meindl has positions in Apple. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple, Berkshire Hathaway (B shares), Meta Platforms, Inc., and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

The valuations of growth stocks have been tested lately in the wake of unprecedented inflation levels, hiked interest rates, and the economic impacts of Russia's invasion of Ukraine. The Nasdaq Composite has descended 28% year to date, and the Cboe Volatility Index -- commonly referred to as Wall Street's fear gauge -- has soared nearly 80% in the same time frame, highlighting investors' uneasiness at the present moment. 

Tesla (NASDAQ: TSLA), one of the most polarizing stocks on Wall Street, has joined the sell-off by shedding 41% of its value since the start of the year. The EV leader's market capitalization eclipsed $1 trillion in late 2021, but the stock has since backpedaled, settling at a $738 billion market cap today. Will the Elon Musk-led company return to the $1 trillion zone, and if so, when? While macro headwinds and Musk's dramatic potential takeover of Twitter surely haven't helped Tesla, the EV giant's business continues to make headway in a grand fashion.

On that note, let's discuss two reasons to consider buying Tesla stock today and one justification for holding back.

Buy: Business is booming

In a quarter rife with macroeconomic challenges and COVID-related shutdowns in its Shanghai factory, Tesla delivered big for its shareholders. The company raked in total sales of $18.8 billion, growing 81% year over year and beating Wall Street estimates by 5%.

Likewise, earnings per share (EPS) finished at $3.22, climbing 246% and smashing consensus forecasts by a whopping 42%. The EV commander produced 305,407 vehicles and completed 310,048 deliveries, adding to the already-strong quarter with respective increases of 69% and 68%. 

Per management's guidance, investors can expect the company to achieve 50% average annual growth in vehicle deliveries over a multi-year time horizon. For the full fiscal year 2022, Wall Street analysts are projecting the company's top line to surge 61% year over year to $86.3 billion and EPS to mount 81%, reaching $12.31.

Given that Tesla's factories have been operating below capacity for several quarters and will continue to do so throughout 2022, the company's growth amid such setbacks is nothing short of remarkable. Its robust balance sheet reveals a 660% year-over-year increase in free cash flow generation, rising to $2.2 billion in the first quarter of 2022 from $293 million in the year-ago period. All told, the EV juggernaut is in an advantageous position to expand its operations in the years to follow. 

Buy: Massive industry potential

Tesla brings a lot of mainstream attention to the EV market, but don't be fooled: the industry is still in its early innings. As of today, there are more than 10 million electric vehicles on the road, but that represents just 1% of global car stock. By 2030, it's projected that there will be 300 million electric cars on the road, a 2,900% upsurge from existing levels. It's also expected that EVs will account for 60% of new car sales by then, a drastic increase from 5% in 2020.

On a broader scale, the global EV market is set to register a compound annual growth rate of 25% through 2030, indicating a market size of nearly $1 trillion by that time. While competition is heating up tremendously, Tesla is well-positioned to remain a winner in the years to come. In 2021, the company was responsible for almost 70% of registered EVs in the U.S. and it reigns over nearly 15% of the global EV market. In other words, it's not Tesla that investors should worry about when considering increased competition in the industry.

Stay away: Steep valuation

At face value, Tesla's valuation appears outrageous. The stock is trading at 95.8 times earnings today, indicating a lofty valuation in and of itself. Comparing the EV giant's price-to-earnings (P/E) multiple to that of other automobile manufacturers paints an even clearer picture.

TSLA PE Ratio data by YCharts

Competitors Ford, General Motors, and Toyota carry price-to-earnings multiples of 4.5, 6, and 8.5, respectively, serving steep discounts compared to their EV peer. Whether Tesla warrants a premium valuation is a classic debate; however, there's no denying that the stock is richly priced today.

Should you buy Tesla?

Tesla is a great company, but its latest pullback has grabbed my attention. That said, it's still trading at a steep valuation and would need to suffer a far greater correction to be considered cheap. Although Tesla continues to make fantastic strides on the financial front, I'd hold off on buying the stock for now. Not only are there more actionable opportunities available on the market today, but there is also a good chance that macro headwinds and Twitter-related drama drag this stock down further in the coming quarters.

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

The post Down almost 30% in the past month, here are 2 reasons to buy Tesla shares and 1 reason to hold off 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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Luke Meindl has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla and Twitter. 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 Scott Phillips.