Tesla’s 3:1 stock split goes into effect – here’s what it means for investors

Topline

Shares of electric vehicle maker Tesla rallied after hours on Wednesday as the company’s 3:1 stock split went into effect, the second of its kind in about two years, as the automaker the most valuable in the world seeks to make its action more affordable.

Highlights

Tesla shares began trading on an adjusted basis after the market closed on Wednesday, with each investor gaining about two additional shares in the latest stock split, which was approved by shareholders earlier this month. .

Tesla first announced the 3:1 stock split proposal in June to make the nearly $900 stock more affordable; based on today’s closing price, the new stock price would be just under $300 per share.

Although the stock has fallen around 25% this year amid the market selloff, billionaire Elon Musk’s electric vehicle maker has still seen its shares rise around 200% since the last split. shares in August 2020.

Stock splits don’t impact a company’s market value, but evidence suggests that by making stocks more affordable to retail investors, the move often provides a short-term increase in stock price. the action.

Tesla shares have risen around 25% since the 3:1 split was announced in early June, while news of Tesla’s 5:1 stock split around two years ago sent shares up more than 70%. % within 20 days of announcement.

Several other big tech companies announced stock splits this year and saw their stock prices rise afterward. The Google-parent Alphabet 20:1 split in February and Amazon’s 20:1 stock split split a month later.

Crucial quote:

“When stocks are trading in a so-called comfortable range, ordinary investors can more easily afford a share of the company,” according to Lindsey Bell, chief money and market strategist at Ally. “It’s driving more interest in the stocks and more interest means more people are trading the stocks.”

Key Context:

You’re here reported mixed second-quarter results last month that far exceeded analysts’ expectations. Production took a hit, however, worrying analysts as the company was hit by continued supply chain disruptions as well as the closure of a factory in China due to Covid-related government shutdowns. Tesla’s quarterly revenue of $16.9 billion was up 42% from a year ago, although it fell from a record high of $18.7 billion in the previous quarter , ending the company’s record profit streak. “In a nutshell, the quarter was better than expected with a healthy outlook” for the rest of the year, which certainly “seems[s] achievable without margin of error,” Wedbush analyst Dan Ives said following the earnings report.

Chief reviewer:

Tesla shares are overvalued and could fall more than 50%, according to analysts at Citi, who maintain a “sell” rating on the stock with a price target of $424. “Current valuation remains challenging,” especially considering that the few other companies that have reached a similar market capitalization have done so while generating an average of around $100 billion in annualized gross profit versus Tesla’s annualized profit. of 20 billion dollars in the first half of the year, specifies the firm.

Big number: $263.4 billion

This is how Tesla CEO Elon Musk is the penaltyaccording Forbes‘ estimates. He is the richest person in the world.

Further reading:

Tesla shares rally despite slowing earnings, impact of China shutdown (Forbes)

Dow drops more than 600 points as experts warn bear market rally is coming to a halt (Forbes)

Leave a Comment