Stock Split Watch: Is Tesla next?

Electric vehicle, energy and technology companies tesla (TSLA -2.24%) It’s unique. It made electric cars cool. It is led by eccentric CEO Elon Musk. The company has been selling clothing with a double meaning, aiming to poke fun at those who doubt it.

However, the relationship between the company and its shareholders may be what stands out above all else. The company maintains a large shareholder base from retail investors and has already split its shares twice for retail investors.

A new bull market has begun, which could bode well for stocks. Should we be paying attention to Tesla’s next stock split?

Why do companies split their stocks?

Companies split their stock for several reasons. A stock split is when a company divides its stock into many smaller shares. It’s like cutting a pie into smaller slices so more people can eat it.

Let’s say you own 10 shares of a stock that are trading at $100 ($1,000 total). The company will split its stock into 4-for-1 shares at a 4:1 ratio. Your 10 shares of his become 40 shares, trading at $25 per share. You still have $1,000 worth of stock, but you get more shares at a lower price per share.

This point is important. Stock splits affect stock prices because each stock represents a smaller portion of the company. Basically, the value of the stock itself remains unchanged. Just because you cut a pie into smaller pieces doesn’t mean it’s going to be bigger.

So why do companies do it? First, it will be easier for individual investors to accumulate stocks. It also generates buzz about the company, which may have a positive impact on stock prices in the short term.

Tesla stock split history

Tesla split its stock twice. The first time he had a 5-1 split in 2020 and the second time he had a 3-1 split in 2022.

TSLA data by YCharts

The company cited two reasons for the stock split. First, it gives employees control over the company’s stock by giving them stock as compensation and dividing it into smaller shares. Second, Tesla knows that retail investors strongly support the company, and the company wants to make sure that its shares are available to retail investors. According to Wall Street Zen, approximately 44% of the company’s outstanding shares are owned by non-insider individuals.

Will Tesla split its stock?This is important

Tesla stock is currently trading at just over $180 per share, a far cry from its 52-week high of $299. Tesla did not split at around $300, so it is unlikely that a split will occur, at least not until the stock hits new highs.

Investors should pay more attention to the company’s recent Q4 earnings report, which gives shareholders a glimpse into the short- and medium-term future. Management said vehicle deliveries are likely to decline in 2024 as Tesla focuses resources on preparing next-generation vehicle designs that it believes could spark its next big growth phase. Ta.

Markets often don’t look that far ahead, so this expected drop in production will push stocks to new highs, even though the overall market has recently hit new all-time highs. may be hindered.

Ultimately, what matters is whether investors believe Tesla will continue to grow and create value for shareholders. Next-generation platforms aside, there is certainly a lack of growth opportunities in electric vehicles, energy storage, and artificial intelligence (AI). Tesla stock has already returned 11,000% over its lifetime, and the future looks as bright as ever.

If you don’t want to buy a whole share of stock right now, consider a stock broker that allows fractional shares where you can invest a fixed amount, regardless of whether the stock is split or not. By incorporating Tesla into a long-term, diversified portfolio, you could potentially reap the benefits of investing in multiple great companies.