Interactive Investor

Tesla stages second stock split in two years

24th August 2022 15:10

by Graeme Evans from interactive investor

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In a summer of stock splits, Tesla is following Amazon and Alphabet in making its shares more accessible. What’s the impact of tomorrow’s move?

Tesla cars at a factory 600

Tesla shares will be within the reach of more retail investors from tomorrow after the electric car maker’s second stock split in as many years.

The process reduces Tesla (NASDAQ:TSLA)’s share price to around $296 (£251) when using Tuesday night’s close of $889 (£756) as an example, but there’s no bearing on the current $930 billion (£790.8 billion) valuation for the company run by Elon Musk.

The split takes effect tonight, when those shareholders on the register on 17 August will receive two additional shares for every one held. Trading on a stock split adjusted basis will commence tomorrow.

The shares made their debut at $17 in 2010 but were $1,475 by the time of the announcement of Tesla’s previous stock split in 2020, representing a valuation of 112 times forward earnings.

After that five-for-one split took place in August 2020, Tesla rallied by another 150% over the following year to hit its landmark valuation above $1 trillion.  

The shares topped $1,200 in November 2021 but were back at $630 in May as the US Federal Reserve’s aggressive stance on inflation derailed growth and tech stocks.

Improved market sentiment and better-than-expected second quarter results have inspired a recovery since then, with Morgan Stanley recently sticking to a target price of $1,150.

The bank told clients that Tesla is still in the ‘must own’ category for any energy transition portfolio, adding that forecast beating and self-funding attributes appear to be further separating the company from other electric vehicle players.

Tesla is one of several high-profile US companies to have announced splits this year, with Shopify (NYSE:SHOP) and Google parent company Alphabet (NASDAQ:GOOGL) having completed their moves in June and July respectively.

Amazon (NASDAQ:AMZN) shares were changing hands at $2,758, making them the second most expensive stock in the S&P 500 prior to its 20-1 split in June. 

This summer’s flurry of activity comes after just 28 in the past five years, compared to a peak of 346 between 1996 and 2000. Recent research by Bank of America covering stock splits since 1980 showed that companies see average returns one year later of 25% compared with 9% for the wider market.

They are particularly rare in the UK, despite plenty of stocks trading with lofty prices.

The cost of buying one share in Spirax-Sarco Engineering (LSE:SPX), AstraZeneca (LSE:AZN) and Flutter Entertainment (LSE:FLTR) is currently more than £100 in the FTSE 100, while other popular stocks above £60 include Reckitt Benckiser (LSE:RKT), Games Workshop (LSE:GAW) and London Stock Exchange (LSE:LSEG).

Stock-split infographic new June 2022

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