Is Tesla Stock a Buy, Sell or Hold?

Tesla (TSLA 2.27%) continues to take investors on a volatile journey. While shares have soared recently due to founder and CEO Elon Musk’s $1 billion stock purchase, this remains a very polarizing business. There are valid arguments coming from both bulls and bears as to Tesla’s merits as an investment.

Is this top electric vehicle (EV) stock a buy, sell, or hold right now?

Image source: Tesla.

Concerns around valuation

In the past decade, Tesla shares have climbed 2,300% (as of Sept. 18). This phenomenal gain is a direct result of the company’s success disrupting the global auto industry with its innovative and tech-forward EV fleet. Sales have trended higher over time, and the brand is now widely recognized.

However, the stock has overreached. Investors who wish to buy the stock must pay a hefty price tag with shares boasting a price-to-earnings (P/E) ratio in nosebleed territory at 246. This valuation is a convincing enough reason alone for many Tesla shareholders to sell out of their position — such a high valuation introduces a major headwind to achieving solid future returns.

Tesla’s (possible) future

To make matters worse, Tesla’s automotive revenue declined 16% year over year in the second quarter, and its operating income tanked 42%. A growing backlash against Musk’s public profile and increased competition have led to struggles for the EV segment.

That said, many investors believe that Tesla will look totally different five or 10 years down the road. They’re betting that the company’s newly launched Robotaxi business and other technologies like humanoid robots could eventually lead Tesla to higher sales and earnings. The success of those ventures is anything but certain, however, despite how much they may be propping up the current valuation.

For much of Tesla’s existence as a publicly-traded company, the stock has been highly speculative, and that remains the case now — the risk-reward profile simply doesn’t make sense at these levels.