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Back in late 2024, Tesla (NASDAQ: TSLA) was one of the hottest stocks in the market. At one stage, it rose up to $488 – nearly 150% above where it was trading mid-year.
However since then, the stock’s experienced a major wipeout. Here’s a look at how much an investor would have today if they’d stuck £10,000 into the stock at its peak.
A car crash
Tesla stock peaked on 18 December. As mentioned above, it topped out at $488. Fast forward to today, and the stock’s sitting at $239. That’s a return of around -51%.
A UK investor would have seen an even worse return though. That’s because the GBP/USD exchange rate has moved from 1.26 to 1.29 since 18 December.
What this means is that anyone who put £10,000 into the stock at its peak would now have about £4,790 (I’m ignoring trading commissions and assuming an investor could initially buy a full £10,000 worth of stock via fractional shares). Ouch!
The takeaways
Now, some people might look at this and conclude that investing in the stock market is very risky. And that would be understandable. But I don’t think that’s the key takeaway here.
For me, one of the biggest takeaways is that it pays to look at a company’s valuation before investing in it. Back in December, Tesla was trading at a sky-high valuation that didn’t really make a lot of sense. At the time, its price-to-earnings (P/E) ratio was close to 200. That wasn’t really justified given the company’s growth (or lack of) and risks.
Another takeaway is that it’s crucial to diversify when investing in stocks. Because every company has specific risks. If someone had just 2% of their portfolio in Tesla, the near-50% fall may not have hurt them too much. However, if an investor had 30% or 40% of their portfolio in the stock (and I’ve seen this kind of thing quite a bit), the chances are the value of their portfolio has dropped significantly since mid-December.
Ultimately, risk management’s crucial in investing, especially in high growth stocks. Because things can go wrong.
We’ve seen that here. Not only has Tesla faced plummeting sales worldwide but sentiment towards the electric vehicle (EV) company and CEO Elon Musk has really deteriorated.
Worth a look now?
Is Tesla stock worth considering while it’s around 50% off its 52-week highs? That’s a hard question to answer.
On one hand, I do think the company continues to have plenty of long-term potential. If the company can crack Full Self-Driving (FSD) technology, the potential’s huge.
On the other hand, the valuation still looks too high today. Currently, the P/E ratio is still over 90, which to my mind is not so attractive.
Given the high valuation, I think there are better growth stocks to consider buying today. If you’re looking for ideas, you can find plenty right here at The Motley Fool.
