Tesla has recently announced a five-for-one stock split, taking effect from August 31st, in a bid to ease hurdles of entry for individual investors. Only a day after the announcement was made, the automaker’s share prices soared over 7% on Wednesday.
Stock splits help the companies to keep their stock prices cheap and provide access to employers and small investors. This method has not been so common in the United States; only three companies have announced the stock split this year, including Apple.
The company released that, after the trading ends on August 28th, the company’s shareholders will be entitled to receive four more shares for each then-held share they own in the company. The value of all five shares will be the same as the closing price of the pre-split stock from that same day. Let’s say, if we look at Tuesday’s closing price, the value of new split shares would equal $274 each. The lowest that Tesla was trading during last year was $211.
After the recent announcement, the company was valued at $1,485 per share and worth $250 billion, which is higher than the combined valuation of Ford and Toyota. So, it can be said that Tesla is currently one of the most valuable automobile companies around the globe.
Tesla’s stock price has taken off by 230 percent this year. The company’s second-quarter results this year were surprising as its earning per share was at $2.18 and $6.04 billion revenue amidst the global pandemic, which reveals that the company managed to remain profitable and valuable when the global economy was dwindling. It is reported that the company had sold around 179 000 cars in the first two quarters of 2020, which is greater than its competitors.
One of the reasons why Tesla stock prices surged is the opening of a factory in China, which increased the deliveries, leading the company to report profits for four consecutive quarters.
However, the stock split is not supposed to increase the intrinsic value of the shares. Perhaps, the increase in share prices of 7% following the announcement can be the result of speculation among investors because of the expectation of high demand due to the stock split.
Demand for Tesla stock is expected to keep increasing as stock split enables smaller investors to invest in the company. However, it should be noted that this will not affect the fundamentals of the company. Still, investors should always be cautious and research investment opportunities for the long term.