Tesla Panders With 5-1 Stock Split Announcement
Retail investors will find shares more attractive after this move, though it doesn't affect the intrinsic value of the company.
The Tuesday announcement of Tesla’s (TSLA) 5-1 stock split seems to be an effort to make its stock more accessible to retail investors—and does nothing to change the intrinsic value of the company.
Shareholders on record at Aug. 21 will receive four additional shares via a stock dividend for each one share already owned in this stock split.
The company announced in a release that the split is being done to “make stock ownership more accessible to employees and investors.” Since the coronavirus pandemic caused a rise in day trading, fractional shareownership might be on the board’s mind.
Shares will be distributed after the market closes on Aug. 28, and the stock will trade split adjusted on Aug. 31. Because of this, we will likely set our split adjusted fair value estimate on Aug. 31 at about $145. This value reflects the split, time value of money since our last update, and a higher share count to incorporate the 207 million presplit diluted share count at June 30. Our post-split share count will be 1.035 billion.
We think a split is unnecessary but given Apple’s (AAPL) recent 4-1 split announcement and tech companies having a history of splitting, going up, and then splitting again, it’s not shocking to see Tesla take this path. CEO Elon Musk also said on May 1 via Twitter, on the same day that he tweeted that he was selling almost all his physical possessions and homes, that he felt Tesla’s stock price was too high. The stock opened at $755 that day and has more than doubled since then before coming back down in recent days, a downward trend the split news will now likely conveniently stop. In theory, Tesla’s stock should not go up on this news, but its rise after hours supports our point that retail investors will find the shares more attractive at the lower price.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
David Whiston has a position in the following securities mentioned above: AAPL. Find out about Morningstar’s editorial policies.