Tesla’s three-for-one stock split is official.
The Friday announcement came just one day after Tesla’s shareholder meeting at its new headquarters in Austin, Texas. Tesla said the stock split can “help reset” share prices so that employees “have more flexibility in managing their equity” and to be “more accessible to our retail shareholders.”
It’s the second stock split for the company in less than two years. This follows the recent stock splits from a string of tech companies including Google, Shopify, and Amazon.
Here is what the stock split will mean for Tesla shareholders and why it could end up being a lucrative action.
When does Tesla’s stock split take effect?
Tesla’s stock split will take effect on August 25. Investors who owned Tesla stock on August 17 will receive an additional two shares after markets close on August 24.
What is a 3-for-1 stock split?
A stock split means a single share gets split into multiple shares. Typically, companies do 2-for-1 or 3-for-1, though Amazon recently executed a 20-for-1 split.
The price of Tesla shares after the stock split will get divided by three. So if the split took place at Friday’s closing price of $865 a share, the split-adjusted price would go down to $288.
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Tesla’s market value wouldn’t change as a result of the split because share prices would decrease at a proportional rate to the number of shares made available.
Do you lose money when a stock splits?
Since a stock’s market value doesn’t change shareholders don’t lose any money because of a stock split.
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Generally speaking, stock splits are a good sign because they mean that a company has done so well that the price of a single share is too expensive for an average retail investor.
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Theoretically, stock splits by themselves shouldn’t influence share prices after they take effect since they’re essentially just cosmetic changes.
But Bank of America research analysts found that since 1980, S&P 500 companies that announced stock splits “significantly outperformed the index 3, 6, and 12 months after the initial announcement.” Over 12 months, stocks that announced splits gained an average of 25% compared with a 9% gain in the S&P 500.
The research seems to suggest that it’s better to buy a stock before it splits, so you can have skin in the game before it shoots higher.
Keep in mind that “some of the outperformance is likely due to momentum,” the analysts wrote in a research note published after Amazon announced its split on March 9.
“Once the split is executed, investors who have wanted to gain or increase exposure may start to rush for the chance to buy.” Ultimately, a company’s underlying strength is what drives the direction of a stock, they wrote.
Since Amazon made the split announcement five months ago, its stock is virtually unchanged, as of Friday afternoon.
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Source: https://finance.yahoo.com/news/does-mean-stock-splits-why-193913533.html