Tesla hopes new investors will jump in after stock split

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NEW YORK (AP) — Unlike its cars, Tesla shares are about to get cheaper.

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Tesla is splitting its stock 3-for-1, so after markets close on Tuesday, investors will receive two additional Tesla shares for each one they held on Aug. 17. In theory, that should send Tesla’s share price down about two-thirds before trading begins on Wednesday.

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Stock splits do not make a company more valuable or profitable. Tesla joins stock market heavyweights Amazon and Alphabet, Google’s parent company, in splitting their high-priced shares this year. Even GameStop, darling of meme stocks, did a stock split.

WHY DO A STOCK SPLIT?

Stock splits are used by companies when their stock price becomes too high for retail investors to buy individual shares, or when a company wants more shares in the market to make them easier to trade. .

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Employees who own shares of a company can also benefit if new investors push the price higher. The lower prices should also make it easier to sell stocks.

Tesla shares were trading for more than $1,000 when the company announced plans to split the stock in March. That’s a bit steep for most retail investors. Some brokerages allow investors to buy fractional shares, but not all.

Companies that split their shares tend to outperform the broader market in the three, six and 12 month periods following the announcement of a split, according to a BofA Global Research report published in March. Since 1980, the 12-month performance of companies that have split their stocks has more than doubled that of the S&P 500.

HOW HAS TESLA’S STOCK BEEN?

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Shares of Tesla closed at $889.36 on Tuesday and are down about 16% for the year. A price of around $296, while still not exactly cheap, could entice more investors to buy the stock.

Any investor in Tesla is partly betting on the company’s mercurial CEO Elon Musk, who managed to make Tesla the world’s most valuable automaker and himself the world’s richest man, according to Forbes. .

But the ride can be bumpy with Musk as the wheel. In April, Musk reached a deal to buy social media platform Twitter. Some Tesla investors sold their shares, fearing that Musk would be distracted from running Tesla if the deal went through. Shares fell as low as $620 in late May.

Musk has since flip-flopped and wants out of the deal. The dispute will go to court in October. Tesla stock began to rally in July, boosted by better-than-expected second-quarter earnings and a general uptrend in the stock market.

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HAVE OTHER NOTABLE COMPANIES SPLIT THEIR STOCK?

Amazon and Alphabet, Google’s parent company, have each split their stock 20-to-1 in recent months. Both companies were caught up in a broad rally for big tech stocks after the initial shock of the pandemic and their shares soared north of $2,000.

Alphabet shares have risen 2% since its stock split went into effect on July 18, but is still down about 20% for the year. Google saw its weakest revenue growth in two years in the second quarter, a sign that the tailwinds that propelled big tech companies during the pandemic have shifted in a tough new direction.

Amazon shares have gained nearly 9% since the split took effect on June 6, but like Alphabet, the company has faced challenges and its stock has fallen nearly 20% since the start of the the year. Consumers have changed their behavior and are spending more on services and less on goods. Like many businesses, Amazon has seen its own costs rise significantly.

Even GameStop, the so-called meme stock that reached ridiculous levels last year before falling somewhat back to earth, has decided to do a stock split. Although in GameStop’s case, it was retail investors who drove the stock higher in the first place.

GameStop shares closed Tuesday at $33.56 and are down about 6% since the split went into effect, partly reflecting the market’s decline in recent days.