Tesla's Stock Has Crashed 30% This Year. 1 Thing to Know Before You Buy.

Tesla's (NASDAQ: TSLA) stock has come down considerably since the year began. Shares are down roughly 30% in value so far this year, with the stock's price-to-sales ratio falling from over 15 to just 9.2.

On paper, Tesla's valuation looks compelling. But there's one factor that investors must understand before jumping in.

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Tesla's stock isn't as cheap as it looks

There's no doubt that Tesla's stock is much cheaper than it was just four months ago. But when you zoom out further, it becomes obvious that most of this crash simply reverted Tesla's valuation to its historical trading average.

In recent years, Tesla's valuation has typically ranged between 5 and 10 times sales. In the closing months of 2024, however, Tesla's valuation soared to more than 16 times sales. The recent correction simply brought the valuation multiple down toward historical norms. In fact, even after the correction, Tesla's price-to-sales multiple remains above its multiyear average, even when including the abnormal levels seen in late 2024 and early 2025.

TSLA PS Ratio data by YCharts. PS Ratio = price-to-sales ratio.

Tesla's growth forecast has picked up since the close of 2024. But even when looking at the company's forward price-to-sales multiple -- a metric that factors in this higher expected sales growth -- Tesla shares still trade a bit higher than their long-term average. And again, those long-term averages include the abnormal levels experienced at the end of 2024 and the start of 2025.

Does any of this mean that Tesla is a poor investment for long-term shareholders? Absolutely not. But the stock isn't as cheap as it seems following the correction, given that the correction began at abnormally high valuation levels.

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Ryan Vanzo 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.