Tesla soared around 50% after company announced its 5 for 1 stock split

Tesla soared around 50% after company announced its 5 for 1 stock split

The FINANCIAL -- Tesla announced on August 11, 2020 that the Board of Directors has approved and already declared a five-for-one split of Tesla’s common stock in the form of a stock dividend. The goal of this action is to make stock ownership more accessible to employees and investors. Tesla Inc.’s market cap now stands at $382.04 billion, making it the 13th most valuable company trading on American exchanges.

A stock split doesn't change the underlying value of the company; it just lowers the share's price to make it more affordable to new investors and employees. Stocks tend to outperform after the split not only because they are more accessible to smaller investors but they also indicate that management Is confident about company’s future prospects. For example, Apple stock is up by almost 10% since it announced its split in late July and its market cap is up over 3x since its last split in 2014, according to Forbes.

Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.

The Tesla stock split bull run tops off a rally from a $350 intraday low on Mar 18, to an Aug 11 open of $1,396. The Friday closing price was $2,050. Together with the Tesla stock split melt-up, shareholders who purchased TSLA in late March now can sell their shares for 374% more than they bought them, CNN wrote.

Tesla Inc.’s market cap now stands at $382.04 billion, making it the 13th most valuable company trading on American exchanges. Tesla rallied past the $2,000 per share mark Thursday and ended the week at $2,049.98. The electric vehicle and clean energy company is now way ahead of its competitors in the segment. Tesla is now worth more than General Motors and Nikola Corporation combined. Those auto stocks have market caps of $40.87 billion and $39.37 billion, respectively, according to Yahoo.

It seems silly for investors to keep plowing into the stock just because it's about to split. A majority of Wall Street analysts are betting against Tesla. Of the 33 that officially track the stock, only eight have a buy rating on Tesla while 15 have it rated a hold and 10 are recommending a sell on it. Only three of the Tesla analysts currently have a price target for it above $2,000. The consensus target is just under $1,300 -- almost 40% below its current price. Tesla continues to be a big target of short sellers, investors who borrow the stock and sell it with the hopes of eventually buying it back at a lower price. The fact that so many short-sellers have piled into Tesla also might have helped fuel the rally. Because short sellers lose more money as the price goes higher, investors betting against Tesla are often forced to buy back the stock in order to cover their position and avoid further losses. That creates a phenomenon known as a short squeeze that can push the stock up even more, as reported by CNN.

As many short sellers piled into Tesla and they lose more money as the price goes higher, investors who are betting against Tesla are often forced to buy back the stock to avoid further losses. This can push the stock up even more, but even Ross Gerber, who owns Tesla shares, said that that he thinks the stock is "being bid up potentially by people who think the split will make them money. Be careful. It's OK to take some off the table. I have." Meaning that he also sold some shares once they hit $2,000.

Last month, Apple also announced a stock split. The Board of Directors approved a four-for-one stock split to make the stock more accessible to a broader base of investors. This is the fifth stock split since Apple went public in 1980. The last split was in 2014. Read more.

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Author: The FINANCIAL