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Why Tesla Stock Fell Sharply on Friday

admin 2021.03.26 15:21 Views : 136

What happened

Shares of Tesla (NASDAQ:TSLA) took a hit on Friday. At its worst point during the trading day, the stock was down 6.3%. However, by the time the market closed, shares were down 4.4%.

The growth stock's decline extends a big pullback for the stock recently, largely driven by growing negative sentiment in the market about the valuations of stocks like Tesla that soared in 2020. Investors seem to be doing some profit-taking.

A woman unlocking her Tesla vehicle with a mobile app

IMAGE SOURCE: TESLA.

So what

Many growth stocks have been falling since about mid-February. The market seems to have decided it was time to do some profit-taking on these stocks after an enormous run in 2020 and the first six weeks of this year. Though many growth stocks rebounded a few percentage points on Friday, not all of them did. Further, most growth stocks are still down sharply from levels in February.

Without any major developments regarding Tesla specifically on Friday, fear amid a big pullback for the stock was likely the primary driver for the decline.

Of course, shares are still up 640% since the beginning of 2020.

 

Now what

Tesla shares do trade at a pricey valuation, making them look like they may be significantly overvalued. Investors should consider that management expects vehicle deliveries to grow more than 50% this year. Indeed, Tesla has said it expects to sustain an average compound growth rate of about 50% for its vehicle deliveries for the foreseeable future.

In addition, Tesla is now generating substantial free cash flow. This means it not only has big growth opportunities in front of it, but it can primarily fund those opportunities with internally generated cash flows.

Tesla's stock may be down, but its business is thriving.

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