Bitcoin’s tumbling price and recent weakness in growth stocks may be weighing on the electric car maker’s shares.
Key Points
- Tesla owns about 42,000 bitcoins.
- Shares are down 16% since late November.
- Despite the stock’s recent weakness, the underlying business is doing very well.
What happened
Shares of electric car maker Tesla (NASDAQ:TSLA) are down on Monday. The growth stock fell as much as 5.6% but was down 4.8% as of 10:55 a.m. ET.
Shares were likely down primarily because of a tough day for the overall market and a sharp drop in Bitcoin’s price.
Image source: Tesla.
So what
Highlighting the challenging day for the overall market on Monday, the S&P 500 was down 0.6% as of this writing. The tech-heavy Nasdaq Composite was down nearly 0.8%. Tesla stock has now fallen 16% since Nov. 22.
Weakness in Tesla stock may be primarily related to a rough few weeks for growth stocks as investors seem spooked by news of a potential acceleration of the timeline for the Federal Reserve’s interest rate hikes. Also potentially weighing on Tesla stock today is a decline in Bitcoin‘s price. Tesla owns about 42,000 bitcoins — a large sum in absolute terms but fairly small relative to the company’s $16.1 billion in cash and cash equivalents.
Interestingly, Tesla stock’s decline on Monday comes as Time named Elon Musk its 2021 Person of the Year. “In 2021, Musk emerged not just as the world’s richest person but also as perhaps the richest example of a massive shift in our society,” Time wrote.
Now what
Tesla stock’s sky-high valuation means that shares will generally be much more volatile than the overall market. The stock is priced for significant free cash flow growth over the next 10 years — and small changes in the market’s opinion on how much it wants to pay up for estimates of future cash flows can have a dramatic impact on the way the stock trades. But Tesla has certainly been executing well, with trailing-12-month vehicle deliveries up 87% year over year. This strong business momentum has investors confident in the company’s long-term growth potential, helping the stock command a price-to-earnings ratio of more than 300 today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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