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Is Tesla's downshift for real?

April 15, 2014: 3:49 PM ET

The break lights are finally coming on for investors' favorite auto stock.

Shares of Tesla Motors (TSLA) fell over 2% Tuesday after reports surfaced that Arizona failed to pass a bill to allow the company to sell cars directly to consumers.

It marks the fourth straight day of losses for Tesla's stock.

It's unclear what effect the Arizona bill actually had today. The automaker has long sought to bypass dealerships because it says they wouldn't do a good enough job of explaining the advantages of electric cars.

Related: Tesla to raise $1.6 billion for 'Gigafactory'

Instead, there appears to be a broader market souring on Tesla. The stock has tanked roughly 17% in the past month.

That's notable for a company that Wall Street and individual investors alike have been head over heels for. After all, Tesla won CNNMoney's fourth annual March Stock Mania.

While the stock began to falter early along with the rest of the Nasdaq, investors began worrying that the costs of building Tesla into the next great auto company could eat into sales more than previously forecast, said Brian Sozzi of Belus Capital Advisors.

"The market is questioning the fundamental outlook for the first time in a while," he said.

The decline comes amid a broader sell-off in so-called momentum stocks, which until recently seemingly could do no harm.

Netflix (NFLX) is down 23% in the last month, while Twitter (TWTR) has fallen 14%.

Telsa is still up almost 350% in the last year, and its rapid rise has outpaced other the other high-fliers.

But for Tesla and many momentum stocks, sometimes there's not an obvious reason for big price swings, said Scott Wren, Senior Equity Strategist for Wells Fargo Advisors.

"When the thing cracks, weak hands start to fold," he said. "There's a snowball effect, a get-me-out mentality."

Related: Investors aren't bringing sexy back

Wren said Tesla is an interesting stock for traders, but for long-term investors, its high valuation relative to its earnings is hard to justify.

"If a client's portfolio has over 5% momentum stocks, that's too much," he said.

And an argument can be made that after such a big run, a pullback is considered healthy. The stock is trading at 112 times 2014 earnings, after all.

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