What Tesla's 3-For-1 Split Means For The Battered Stock: 'A Smart Move By Board'

Zinger Key Points
  • Tesla's 3-for-1 split is likely to give a psychological lift to the stock in the near term.
  • Analysts say the split ratio makes sense and see a run-up in the stock ahead of the split taking effect.

Tesla, Inc. TSLA finally filed a proxy statement with the SEC, wherein it revealed that it intends to implement a 3-for-1 split in the form of a stock dividend.

What The Split Means For Stock: Tesla's stock has been battered in the sell-off seen since the start of the year. The stock is down about 34% in the year-to-date period. The stock split could prove salubrious for Tesla, as it is a signal that the stock has grown to the point of becoming unaffordable to retail investors.

While a stock split does not change the value of one's investment, it does have a positive psychological effect. Tesla has split its shares once in the past, with a 5-for-1 split taking effect on Aug. 31, 2020. Post split, the stock was on a tear and topped out at 1,243.49 on Nov. 4, 2021.

Source: Yahoo Finance

Explaining the logic behind the split, Tesla said in the proxy statement,"We believe the Stock Split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity, all of which in our view, may help maximize shareholder value."

Related Link: Tesla Upgraded To Buy: Why This Analyst Thinks EV Maker's Operational Outlook Is Stronger Than Ever

Analysts Weigh In: Analysts and Tesla experts view the development as largely positive. Wedbush analyst and Tesla bull Daniel Ives termed the stock split as a smart move by the board. The analyst also noted that there have been a lot of questions on the decision from the Street over the last several months.

Future Fund founder Gary Black said the 3-for-1 split makes sense. Post the 5-for-1 split in August 2020, each Tesla stock was worth $275 compared to the pre-split price of $1,374. The 3-for-1 split announced Friday also renders the stock price around that vicinity, i.e. at $233, he noted. Black also sees about 20% upside ahead of the split, post the second-quarter earnings report, the Twitter, Inc. TWTR deal and potentially a credit rating upgrade.

Tesla stock could see an upward bounce in Monday's session, in reaction to the announcement. Giga Shanghai ramp-up and macroeconomic cues will largely determine the stock's trajectory in the near term.

Tesla closed Friday's session down 3.12% at $696.69, while in after-hours, the stock added 1.91% to $710, according to Benzinga Pro data.

Posted In: Daniel Iveselectric vehiclesGary BlackAnalyst ColorNewsAnalyst RatingsTrading Ideas