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The disconnect between Tesla’s business and stock price continues to grow wider

Macroeconomic and geopolitical backdrops are weighing on the stock market since early 2022. Whether it’s rising inflation, the Federal Reserve’s interest rate hikes or negative side effects from Russia’s invasion of Ukraine, stocks have absolutely pounded of late. Year to date, The S&P 500 It has fallen 21% and many investors believe the recession is likely to deepen.

However, the sell-off has created many wonderful buying opportunities for prudent investors. Many companies continue to lose their market value significantly despite experiencing stable operational and financial success.

That is exactly the case Tesla (TSLA 1.24%) Today. The electric vehicle (EV) king’s business is performing at a high level, but its share price has contracted 44% since the new year. Corrections are inevitable, so we can embrace them instead of fearing them. Here’s why Tesla is a great stock today.

A man charging a white electric vehicle.

Image source: Getty Images.

The EV leader is firing on all cylinders

Don’t be fooled — Tesla isn’t struggling financially. In its most recent quarter, the EV maker grew total revenue 81% year-over-year to $18.8 billion, and adjusted earnings per share rose 246% to $3.22.

As it continues to scale its operations at a rapid pace, the company’s business is quickly becoming more profitable. In Q1, its GAAP gross margin and operating margin expanded 779 and 1,349 basis points year-over-year to 29.1% and 19.2%, respectively.

Against a backdrop of high inflation and persistent supply chain disruptions, Wall Street analysts are projecting the company to have an even stronger year. In fiscal 2022, analysts expect Tesla’s total revenue to rise 58% to $85.3 billion and adjusted earnings per share to rise 77% to $11.99. That puts the company’s growth rates down by 43% year-to-date, but growth isn’t Tesla’s only important factor.

The company has a cash and cash equivalents position of $17.5 billion and a debt position — excluding vehicle and fuel financing — of just over $100 million. Likewise, the EV juggernaut generated $2.2 billion in free cash flow (FCF) in Q1, representing a 660% year-over-year rise.

Once viewed as a speculative investment, Tesla has blossomed into a highly profitable business with a solid balance sheet and robust cash flow generation. Moving forward, the EV leader is well-equipped to expand its operations and weather any anticipated economic storm.

Great time to buy

The EV Commander looks like a mighty good investment at the moment. The disconnect between its operating performance and valuation continues to grow wider, serving as a clear buy signal for long-term investors.

Given today’s economic climate, I wouldn’t be surprised to see this stock drop in the coming trading sessions. That said, it’s not a good idea to try and time the market — I still think we’re presented with a great opportunity to buy shares of the EV leader. For investors with an extended time horizon, today is the time to back up the truck and buy Tesla stock.

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