Tesla's recent stock-split means the company has divided its existing shares into multiple new shares as its current share price was too expensive for smaller investors. So, the new move by Tesla CEO will make the EV manufacturer’s shares more affordable. In one year, Tesla shares soared from $229 to about $1,500 but after the stock split, a single share will cost $275 as each share was split into five.
This week, after the Tesla board approved the five for one split, shares surged by 7%, which translates into astonishing numbers. The company’s total dollar value is estimated to be $272bn. A 7% rise in share price equates to $19bn. Elon Musk currently owns 20% of Tesla which is said to be worth $55bn and now with the recent surge in share value, he can add $3.8bn to his worth.
The increased value is not indicative of any business changes or new car launches, so it’s more a case of market momentum rather than fundamentals. But doing a stock-split is not unique. Google and Apple did the same when their share prices spiked.
As commented by Wedbush analyst, Daniel Ives, “Tesla is following Apple Inc.’s AAPL, +3.32% lead “and ultimately we expect more tech giants to potentially head down this path over the coming months as the parabolic rally in tech/EV names over the past five months has put companies in a position of strength to make such moves.” Ives also added, “The split was a smart strategic move at the right time for Tesla given its strong retail base and growing appetite among investors for Tesla, and, more broadly, for the electric-vehicle industry,” Ives said.
So, because Tesla TSLA, +13.12% shares tripled this year, the company wants to make stock ownership accessible to both employees and investors. As of August 21, each shareholder will receive a dividend of four additional shares of stock for each then-held share. On 31 August, trading on a stock split-adjusted basis will begin. The split is an acknowledgment that the market “is increasingly influenced by individual investors, including those looking to gain exposure to next-generation transportation trends,” wrote Ben Kallo, a Baird analyst.
Kallo added, “strength is indicative of investors electing to purchase stocks which are positioned to benefit from the current upgrade cycle for technology around transportation, renewable energy, and the software enabling both.”
Tesla shares have gained 255% this year, compared with gains around 5% for the S&P 500 SPX, +1.40%, and are up 550% in the past 12 months, compared with a 17% advance for the S&P in the same period. The shares have hit a string of closing records, most recently on July 10 with a $1,544.65 close.
Twice in 2020, Tesla surprised investors with a quarterly profit when Wall Street called for a loss; its second-quarter earnings, its fourth consecutive quarter of GAAP profit, put it on track to join the S&P 500.
Many analysts have not only praised Tesla’s profitability but also the company’s cash reserves while others are expressing caution. New Constructs CEO David Trainer joined Yahoo Finance's Kristin Myers to talk about the predictions on Tesla after the company announced a 5-for-1 stock split.But with the ongoing demand for cars in the EV industry, new Gigafactories being built in Texas and Germany, a “battery day” marked for 22 September, and the expected launch of the Cybertruck are just some great things of what we can look forward to from Tesla in the future that will also be provided added value to the company’s shares.