Tesla Inc TSLA shares are up 66% since the company announced a five-for-one stock split back on Aug. 11. The split will take effect on Aug. 31, 2020.
A large part of the decision is likely due to Tesla’s 966% gain in the past year. At a share price of $2,280, shares of the EV maker have likely become prohibitively expensive for some retail investors. By splitting its shares five ways, Tesla will bring its share price back down to around $456.
Stock Splits: Stock splits are generally seen as a positive by the market. Stocks and often put in a position to split their stocks only after an extended period of strong returns. Once the price of a stock or fund gets too high, even single shares may become too expensive for small, retail investors, limiting demand for the stock.
In addition to ensuring access to all investors, a stock split is typically also an indication that management doesn’t see the current market value as overinflated, another bullish sign.
Psychologically Important: Finally, there’s a psychological component to stock splits that also bodes well for bulls. Even though stock splits don’t inherently increase the market cap of the stock or fund, the new price “seems” cheap to a market that is used to the pre-split price. After paying nearly $2,300 per share for Tesla shares in recent days, investors may perceive the post-split price as a good deal.
Tesla investors who owned the stock as of Aug. 28, 2020, will receive split shares in their trading accounts following the aftermarket close on Aug. 28.
Benzinga’s Take: For all of the reasons mentioned above, multiple market studies have shown stocks that have split typically outperform the market following the split. Tesla investors are hoping their split will be no exception.
Editor's note: A previous version of this article said Tesla investors who owned the stock as of the record date of Aug. 21, 2020 would receive split shares.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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