I consider Tesla one of the most undervalued growth stocks right now

You’re here (NASDAQ:TSLA) stock is one of the most attractive growth stocks I currently have in my portfolio. Since the price is down about 60% from all-time highs, I think this is a really interesting opportunity for me to buy more shares.

Moving from electric vehicles to AI and robotics

In my previous research into Tesla, I was convinced that the company had a strong future. And I cited its fully autonomous driving capabilities as one of the main reasons for that. Tesla’s self-driving taxis could be a big market, in my opinion.

However, that’s not all there is to the operational future. The company continues to develop a robot called Optimus and has a machine learning training program called Dojo, which is expected to be instrumental in the development of its future advanced technology offerings.

There is currently some competition with OpenAI, pioneer of the famous ChatGPT. However, I think Tesla can take a very different approach to AI, with a greater emphasis on robotics.

Finances represent an opportunity for me

It is entirely reasonable to argue that Tesla was overvalued in 2022. However, I now believe the stock has become undervalued.

Part of the reason investor confidence in stocks has declined recently is that gross margins have declined, down about 4%. This is due to difficult macroeconomic conditions and increasing competition in the electric vehicle market, particularly in China. As a result, Tesla has reduced its prices several times.

But revenue has also grown much more slowly recently, and profits and free cash flow have declined. For example, revenues only grew 9.6% over the last year. Compare that to the 10-year average of 38%, and we see why investors are a little deflated right now.

However, the stock price has actually adjusted due to the current downturn. With a price-to-earnings (P/E) ratio currently around 45, compared to a median ratio of around 107 over the past 10 years, the opportunity is starting to become a little clearer. Now, Tesla trades at a lower P/E ratio than Amazon and close to other big tech companies like Microsoft. This is reasonable, in my opinion, because I think that in the future Tesla will be seen as a cutting-edge technology company, not just an automaker.

What if operational changes don’t work?

I’m clearly bullish on Tesla, but that doesn’t mean I’m gambling. I hold it in my portfolio at about 7.5% of my total assets.

Unfortunately, there is always the possibility that the company’s future plans will fail. Companies like AlphabetWaymo is currently leading the way in the field of autonomous taxis.

There are many regulatory hurdles when it comes to AI, and these are likely to get worse as the technology evolves. Especially when it comes to autonomous robots, developed by Tesla, safety will be paramount. Legal restrictions could certainly slow, or even completely inhibit, growth in some regions due to security concerns.

I stay invested and watch carefully

Even given the risks, I think the potential for high growth is too great to ignore. I believe in leadership. Although we are currently going through difficult times, I believe that shareholders will see better days.

The post I view Tesla as one of the most undervalued growth stocks currently appeared first on The Motley Fool UK.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Oliver Rodzianko holds positions at Alphabet, Amazon, Microsoft and Tesla. The Motley Fool UK recommended Alphabet, Amazon, Microsoft and Tesla. The opinions expressed about companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a broad range of information makes us better investors.

Motley Fool UK 2024