Daily Management Review

Tesla Stock Is In The Spotlight As A 3-1 Stock Split Takes Effect


Tesla Stock Is In The Spotlight As A 3-1 Stock Split Takes Effect
Tesla Inc's stock was in the spotlight following the most valuable automaker of the world splitting its stock for the second time in two years in order to attract more retail investors.
In premarket trading on Thursday, shares of the electric vehicle manufacturer rose 1.5 per cent to $301.5. Before the three-for-one split, the stock closed at $891.29 on Wednesday.
"Tesla knows it needs to retain its clout with the retail crowd, especially after this past year-plus of retail investors flexing their muscles," said Callie Cox, analyst at trading and investment platform eToro.
Tesla's shares have dropped by about 11 per cent ever since the electric car maker announced its plans to enhance its share count in March, and are trading nearly flat this month.
"In typical buy-the-rumor, sell-the-news style, investors tend to drastically scale back purchases of splitting stocks in the weeks ensuing the effective split date, causing price momentum to slow," analysts at Vanda Research said in a note.
On social media stocktwits.com, Tesla's ticker was trending, indicating increased chatter among individual investors. This year, high-growth companies such as Amazon.com and Google parent Alphabet announced share splits, highlighting the growing need to diversify their investor base.
In August 2020, Tesla announced a five-for-one stock split.
A stock split has no effect on a company's fundamentals, but it makes it easier for individual investors to make small trades. However, the benefits of stock splits are becoming less clear as brokerages allow customers to purchase fractional shares of a company's stock. Tesla shares, which debuted at $17 in 2010, have risen to more than $1,200 since the stock split in 2020, bringing the company's market capitalization to more than $1 trillion late last year.
But the stock has dropped about 16% this year due to concerns about aggressive US interest rate hikes and geopolitical uncertainty, which triggered a sell-off in high-growth stocks.
Tesla's most recent three-for-one split means that stockholders will receive two additional shares for every share they owned on August 17.