For more info on how we might use your activtrades forex broker data, see our privacy notice and access policy and privacy webpage. Now that you understand the background of when, why, and how Tesla enacted its pair of trifurcations, let‘s quantify the impacts they yielded. Shares usually rise over the year following a split, according to one study. I became a self-made millionaire by the age of 21, trading thousands of Penny Stocks – yep you read that right, Penny Stocks.
- So while the per share price is reduced in half, existing shareholders maintain ownership of the same dollar value pre- and post-split.
- A stock split, while purely cosmetic in terms of earnings or market capitalization, can influence investor sentiment and increase activity—a scenario traders should always watch closely.
- Stock splits usually trigger a rise in the price of shares, according toa Nasdaq study that examined stock splits at large companies between 2012 and 2018.
- In most cases, stock splits are undertaken by companies when the share price has gone up significantly, particularly in relation to a company’s stock market peers.
A stock split is a strategic move by a company to divide its existing shares into multiple new shares to boost the stock’s liquidity and make it more accessible to a broader range of investors. For a high-flying company like Tesla, whose stock prices have soared, a split could make shares appear more affordable, though the underlying value of the company remains unchanged. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors.
After the 3-to-1 split, Tesla’s shares were trading at about $302, a third of where they stood prior to market open. Tesla announced the stock split on August 11, 2020, and it became effective on August 31, 2022. Not only did its stock rise on the split announcement but kept rising until the split took effect. Public companies are capped with respect to how many shares they’re allowed to have in circulation, which is enforced by the SEC. Tesla is near its limit after the last split and public offering (in December 2020) and only has the bandwidth to issue a 2-to-1 split under current conditions without shareholder approval. Options are affected the same way shares are, assuming they expire after the day of the split.
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In the short term, stock splits can lead to increased market volatility as traders and investors react to the news and adjust their positions accordingly. This period can see heightened trading activity, which might affect the stock price temporarily as the market absorbs the new shares and recalibrates its valuation of the company. A stock split doesn’t just alter share prices—it can also reshape how investors view a company’s affordability and growth potential. Other electric vehicle companies have leveraged stock splits to boost interest and accessibility. This tactic often appeals to retail investors seeking opportunities in emerging markets. Tesla’s share price is a key factor that could influence the decision to pursue another stock split.
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For instance, Musk’s possible acquisition of social media platform Twitter represents the latest in a long history of questionable decision-making by a CEO who should be focused on the world’s most valuable auto brand. Legacy automakers like General Motors and Ford Motor Company can be purchased for respective multiples of six and eight times Wall Street’s forward-year forecast earnings. These are companies with rich histories and strong brand awareness that are investing tens of billions of dollars to roll out new EVs and develop autonomous vehicles. Tesla (TSLA) shares are set to split for the second time in the past two years.
Elon Musk, Tesla‘s CEO, has been especially savvy in using Twitter and other public forums to promote Tesla stock and engage with retail investors. He‘s cultivated an almost cult-like following among many Tesla shareholders who view him as a visionary leader. Musk seems to understand the psychological impact of stock splits and how they can make Tesla shares feel more accessible to the masses. A stock split refers to a corporate action taken by a company‘s board of directors to divide its existing shares into a larger number of shares, while proportionally decreasing the price of each share.
Stock splits for similar companies or competitors
These strategic decisions are reflective of Tesla’s growth and its management’s response to the evolving market dynamics. Market sentiment can significantly influence the effectiveness of a stock split. Speculation ahead of such corporate actions can lead to increased volatility as investors try to anticipate the market’s reaction. According to TipRanks, TSLA stock has received a Hold consensus rating, with 12 Buys, 13 Holds, and 12 Sells assigned in the last three months. The average price target for Tesla shares is $330.90, suggesting a potential upside of 32.4% from the current level.
Adjusted for the 5-for-1 split, that‘s equivalent to around $440 per share. One factor that has contributed to the excitement around Tesla stock has been the company‘s willingness to split its shares. These corporate actions have made headlines and sparked accurate currency strength meter renewed interest in the stock.
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The second, however, may have more of an immediate impact on Tesla’s bottom line. Then, there’s China, where Tesla faces fierce competition from lower-cost EVs produced locally. As Tesla retooled its production line for the Model Y, the number of Teslas manufactured in the country last month decreased 49% year over year, according to one of the country’s transportation agencies. Musk downplayed the protests while speaking at CPAC recently, saying the demonstrations had “hardly any people” and didn’t have “popular support.” Trump recently turned the White House lawn into a temporary Tesla showroom, so that Musk could display five vehicles for the press and the president, who said he planned to buy one.
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Historically, Tesla’s previous stock splits have drawn in new investors, creating short-term spikes in trading volume and price action—key elements to watch if a similar event happens again. Clearly, Tesla sees its stock splits as a way to not only reward existing shareholders but also to attract new ones, particularly retail investors who might otherwise be put off by the high nominal share price. And so far, this strategy seems to have paid off, as Tesla‘s stock has continued to climb higher following each split. Tesla Inc. (TSLA) ranks high on a list of potential stock splits due to its rising share price and strong investor interest. Stock splits make shares more affordable by dividing each share into multiple lower-priced shares, which can attract more investors but don’t alter a company’s overall value.
Put simply, the higher the percentage of shares held short, relative to the tradable float, the more negative the perception of the company. It’s worth noting that Tesla’s retail investor following is quite vocal on social media message boards, and the company’s CEO, Elon Musk, knows it. Nominally reducing Tesla’s share price is an easy way to keep these everyday investors engaged. Tesla’s split is unlikely to impact sectors like crude oil and insurance directly. However, it may highlight the shift to electric vehicles, potentially reducing oil demand.
When Is a Good Time to Buy Tesla Stock?
- This move can echo the principles I teach in trading, where accessibility can transform a novice’s approach to building a robust portfolio.
- After that, the board of directors will vote to approve a stock split and likely announce it shortly after.
- Not only did its stock rise on the split announcement but kept rising until the split took effect.
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- Even though stock splits don‘t fundamentally change a company‘s valuation, there is evidence that they can impact investor behavior and market sentiment.
If the stock trades at $100 per share, the P/E ratio would be 10 ($100 / $10). At this stage and because this is Tesla’s first stock split, it’s hard to know whether the company will split its stock again. What we do know, is that other large companies such as Apple (AAPL) and Alphabet (GOOGL) have carried out more than one stock split in their history, so perhaps Tesla will be no different in this respect. With Tesla continuing to disrupt industries from vehicles to insurance to humanoid robots, do not rule out another split as soon as 2024 should astronomical growth keep pace.