This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
What happened
Following a rebound in the stock of Tesla (NASDAQ: TSLA) in late February that took it from below $800 closer to $900, the electric-vehicle (EV) maker's shares are taking a breather on Thursday. The stock was down about 2.1% as of 10:20 a.m. ET today.
The decline is likely primarily due to a bearish day for the overall market on Thursday, namely the tech-heavy Nasdaq Composite.
So what
Shares of Tesla have had a rough year so far. Year to date, the stock is down more than 18%. But even including the pullback on Thursday, shares are up 8% over the last five trading days.
Highlighting the bearish day for the overall market, the Nasdaq Composite is down about 0.8% at the time of this writing. But many growth stocks like Tesla are down several percentage points or more.
Now what
Growth stocks like Tesla have seen significant volatility this year as investors weigh the impact of likely interest rate hikes by the Federal Reserve. Higher interest rates are generally viewed as less favorable for assets with valuations determined largely by expectations for higher cash flows far into the future. Tesla, with its price-to-earnings ratio of 176, certainly fits the bill of a growth stock.
But investors should note that Tesla's business has seen extraordinary growth recently. Fourth-quarter deliveries rose 71% year over year despite an extremely challenging environment for auto manufacturers. And management expects growth of 50% or more in vehicle deliveries this year -- and that's expected even if Tesla fails to get its two new factories up and running well. These factors arguably justify the stock's premium valuation.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
