Tesla Stock Analysis: Is TSLA a Buy After Surging 30% in One Month?

Between dipping demand among U.S. consumers and technology tariffs for producers, the electric vehicle (EV) industry as a whole has seen a slowdown in its growth trajectory. Consider that Tesla (NASDAQ:TSLA) has been the industry pacesetter since Elon Musk made EVs mainstream. Now, keeping a close eye on TSLA stock can give insights into the broader investment prospect of Tesla and the industry as a whole.

Since January of this year through the end of June, TSLA stock had been trapped in a downward trajectory. Many saw it as a correction of its overvalued market capitalization. These losses mounted as its first-quarter earnings report revealed an 8.69% loss year-over-year (YOY) in revenue. And a 55% decrease in net income YOY brought it to $1.13 billion for the quarter.

Yet, in just one month, the company has recovered these losses and is up 34.94% since June 24. Does this exciting recovery warrant TSLA stock as a buy? Is it showing its resilience in the market? Or is it a one-off market rush leading up to a historic election cycle?

Why TSLA Fell in the First Place

Beyond decreasing demand and growing skepticism, TSLA faced challenges in the launch of the company’s latest model, the Cybertruck. During this time, concerns included the relevance of its fully self-driving technologies. In many ways, the sell-offs that plunged its stock value before its recovery this July have been a signal regarding broader investor sentiment.

Today, many wonder if the innovative EV maker is patently overvalued. It commands a market capitalization more than double the next most valuable car company, Toyota Motor Corporation (NYSE:TM). But it’s earning less than half in revenue per quarter. Some argue this is due to the hybrid nature of Tesla stock. It derives value from innovation rather than just auto sales since it behaves like a technology company rather than a car company.

Yet, to develop technologies like self-driving cars and more efficient batteries, Tesla needs both the revenue and exposure. After all, these are necessary to keep research and development churning along.

How it Grew 30% in 30 Days

Admittedly, Tesla’s second-quarter earnings report has effectively slowed the one-month rally TSLA stock has experienced. The report hints at more of the same decreasing revenue and profits as Q1. With over a 40% loss in profits YOY, it’s likely the company will not continue to experience the same level of stock growth even in the face of beating revenue estimates by 3.07% for the quarter.

This clues investors into the fact that the rally over the last 30 days is more of a result of excitement and speculation leading up to its most recent earnings report rather than a build-up of financial success. Certain headlines such as Musk’s endorsement of former President Donald Trump or even hopes that its Cybertruck revenues would compensate may have put the stock in an even more overvalued position over the last month.

After all, much of Tesla’s exciting developments revolve around the broadly publicized moves its rockstar Chief Executive Officer makes.

Is TSLA Stock a Buy Right Now?

Many analysts still say yes, arguing there’s time for another era of growth for TSLA stock. Yet, one fairly obvious component is missing from Tesla’s product portfolio that would help usher in this renaissance. That would be a small car.

Currently, Tesla sells regular-sized sedans, crossovers, SUVs and even a behemoth pickup truck. Yet, it has no compact or subcompact offerings. While this may not seem relevant to U.S. consumers, it’s critical to the EU’s goal of promoting electric vehicle adoption.

Moreover, smaller cars tend to be cheaper and thus more accessible to a wider economic range of consumers, which would increase revenues and profits for the company. Perhaps Tesla still hasn’t fielded such vehicles because it doesn’t view them as relevant to its target market. But it’s hard to deny that smaller cars are central to drivers beyond the U.S. supersized car infrastructure. If Musk moves R&D toward a more pragmatic direction, buying TSLA stock could become lucrative again. However, until then, it’s worth holding.

On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.