Has Tesla's Stock Peaked?

Shares of electric vehicle maker Tesla (NASDAQ: TSLA) have risen by around 70% in the past 12 months, pushing its market cap up to nearly $1.5 trillion. It's one of the leading stocks in the world, due to its focus on growth and innovation.

But there's also no denying that it's also among the most expensive stocks. Investors often have to pay a significant premium to own a piece of the business. Currently, it's around its all-time high. And on a year-to-date basis, it has risen in value by just 9%. Is Tesla's stock approaching a peak, or could this stock still have room to rise higher?

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Investors weren't thrilled with Tesla's recent results

On Oct. 22, Tesla posted its third-quarter results for 2025. Its revenue totaled $28.1 billion, which was better than analyst expectations of $26.37 billion, showcasing a strong beat on the top line. But its adjusted earnings per share came in at $0.50, which fell short of the $0.54 that Wall Street analysts were looking for. Overall, it was a mixed bag for Tesla, and that resulted in the stock showing limited movement in the days following the release of the numbers.

The car company has been facing increased competition and that has been putting pressure on its margins. In Q3, its gross margin of 18% was down from 19.8% in the prior-year period. Smaller margins can make it more difficult for a business to grow its bottom line and this could be a sign of more challenges ahead for Tesla. While it has been launching more modestly priced vehicles in the wake of rising competition, that may not necessarily help its bottom line.

And without strong earnings growth, it can be difficult to justify buying the electric car stock at its current levels.

Tesla's valuation with respect to earnings is monstrous

Although Tesla's stock is trading around its all-time closing high of $479.86, what really puts its valuation in perspective is its price-to-earnings (P/E) multiple. At over 300, its P/E multiple is gargantuan and is nowhere near the S&P 500 average of 26.

It's one thing to pay a premium for an incredibly fast-growing business that looks to be on track to be much bigger in the future, but Tesla's revenue rose by just 12% last quarter, and its core automotive revenue was up by only 6%. Meanwhile, its net income of $1.4 billion was down a whopping 37% year over year. And with competition from Chinese auto makers on the rise, it may not get any easier for Tesla to grow its bottom line in the future.

While it wants to be a big player in artificial intelligence and eventually sell robots, today, its business still centers around electric vehicles. Whether its other ventures will pay off remains a big question mark, and it's risky to value the stock based on them.

I'd steer clear of Tesla's stock

According to the consensus analyst price target of $381, Tesla's stock could be due for a correction of at least 15% from where it trades today. Analyst price targets routinely change, but it's another good data point to suggest that the stock is indeed trading at vastly inflated levels.

Between the stock's concerning decline in earnings, rising competition, and a brutally high valuation, it's hard to make a case for Tesla's stock being a good buy right now. I think it's too expensive and it may have peaked or it's at least getting close to a peak. However, when a stock becomes so detached from its financial performance and speculation is clearly behind its price movements, there's also plenty of unpredictability involved, and I certainly wouldn't rule out it rising higher due to its strong popularity among retail investors.

But the hope that speculation sends the stock higher isn't a good or safe reason to buy this stock, and you may be better off pursuing other, more reasonably priced growth investments instead.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.