Tesla sets 5-for-1 stock split and its high-flying stock soars again

Analysts praised the move as a timely decision to capitalise on Tesla's recent stock price surge.
Analysts praised the move as a timely decision to capitalise on Tesla's recent stock price surge.PHOTO: AFP

NEW YORK (REUTERS, BLOOMBERG) - Tesla Inc on Tuesday (Aug 11) announced a five-for-one stock split to make its share price less expensive for individual investors - and that sent the electric carmaker’s shares up 7 per cent in extended trade.

Tesla’s stock, which traded at US$1,475 (S$2,026) after the announcement, is among the highest priced on Wall Street, and the Palo Alto, California-based company said in a press release it was looking to make its shares more accessible to employees and investors.

Its shares have surged over 200 per cent this year, to as high as US$1,643 in recent weeks, pushing its valuation to around US$256 billion, surpassing the value of Ford Motor and Toyota Motor combined.

Stock splits are a way for companies to make shares more accessible to retail investors, potentially attracting individual investors who make small trades. However, brokerages increasingly let customers buy parts of shares, making the benefit of share splits less clear than in the past.

Tesla said stock holders of record on Aug 21 would receive four additional shares after the close of trading on Aug 28, with the stock trading on a split-adjusted basis beginning Aug 31.

Tesla’s stock split follows a four-for-one split announced by Apple in late July, the iPhone maker’s first stock split since 2014.

Stock splits have become rare on Wall Street in recent years, with just three S&P 500 components announcing splits in 2020, compared with an average of 10 a year over the past decade, according to S&P Dow Jones Indices.

Tesla in July posted a second-quarter profit as cost cuts and strong deliveries helped offset coronavirus-related factory shutdowns, clearing a hurdle that could lead to the carmaker’s inclusion in the S&P 500 index.

 
 
 

While many institutional investors have avoided Tesla’s stock in recent years due to a lack of consistent profitability, the company has a strong following among individual investors.

Over the past 30 days, Tesla was second only to Apple as the most popular stock on the Robinhood trading app, according to Robintrack, a website that tracks Robinhood holdings.

Tesla’s stock split should not affect S&P Dow Jones Indices’ potential decision to add the company to the S&P 500, which is weighted by companies’ overall stock market values.

The share split will not make Tesla any less expensive in terms of actual earnings it delivers to investors. The stock currently trades at 112 times expected earnings over the next 12 months, according to Refinitiv. By comparison, GM is valued at eight times expected earnings, and Ford at 45 times expected earnings.