Is Tesla planning another stock split? Official stock split proposal enters shareholders' meeting, will the surge in price happen again?

Is Tesla planning another stock split?

On March 28, Tesla tweeted that it would ask shareholders to vote for authorization to issue additional shares at this year's annual general meeting to implement a stock split. This comes a year and a half after Tesla’s last stock split.

Following the announcement, Tesla's pre-market trading surged over 6%, currently up more than 6%.

Since March 14, Tesla has seen steady gains, with a cumulative increase of 27% within two weeks, pushing its share price back above $1,000.

Along with the rise in stock price, Tesla's shareholders are also excited.

Ever since the stock split signal was announced, many fellow investors have been looking forward to Tesla’s next surge, predicting that tonight the stock price will soar to $1,100 and reach $1,300 this week.

Of course, what most investors are currently concerned about is: Will this stock split plan pass? When will it take place? How do they plan to execute it? And how will the stock price move?

1. What is a stock split?

A stock split (Share split), also known as 'splitting,' refers to dividing a higher-priced stock into several lower-priced stocks.

Let’s use an example.

Xiao Zhang owns 10 shares of Company A at $50 each. After Company A announces a 1:2 stock split, Xiao Zhang's original 10 shares will become 20 shares at $25 each.Notice that the total value of Xiao Zhang's holdings in Company A hasn’t changed, but the number of shares he holds has doubled.

So, when is a stock split necessary?

Simply put, when a stock price gets too high, it can affect trading volume and deter potential investors, especially retail ones. At this point, companies may consider splitting their stock to increase liquidity. After the split, shareholder equity remains unchanged, as does the company’s total market capitalization, while the number of shares held increases.

2. What happened the last time Tesla split its stock?

On August 11, 2020 local time, Tesla announced a 1:5 stock split. The split-adjusted shares began trading on August 31, 2020, at the split-adjusted price.

Following the announcement of the stock split, Tesla surged 37% in a week, with its share price approaching $1,900.On August 31, Tesla closed up 12.57%,accumulating an approximate 80% gain since the announcement of the stock split.

Since then, Tesla, which had been trading near $400 per share after the split, continued to soar and broke through $1,000 per share again by the end of October last year, leading the rally across the entire US stock market.

3. Can this time repeat the strong performance seen after the last stock split?

Generally speaking,a stock split helps expand the investor base, attract more investors to participate, and increase trading volume and liquidity. The more investors there are, the more it will continue to push up the stock price.Therefore,Stock split plans are generally considered a direct positive factor for boosting stock prices and are often viewed by the investment public as a bullish signal from the company’s management regarding future stock performance.

Today, the electric vehicle industry continues to spark the imagination of small and medium investors, but Tesla's stock price of over $1,000 per share seems a bit 'out of reach.' Therefore, some analyses suggest that increasing the number of shares can lower the 'entry barrier' for retail investors, further boosting the company’s market value.

Wedbush analyst Dan Ives stated:

Amid growing market interest in this stock and the overall EV sector, I think this is a smart move.

According to Bank of America statistics, S&P 500 component stocks that announced stock splits since 1980 have seen an average return of approximately 25.4% in the following 12 months, compared to about 9% for the broader S&P 500 index during the same period.

The bank also noted,After the split announcement, these stocks outperformed the benchmark index over three- and six-month periods as well.'Strong fundamentals are the primary driver behind the stock’s rise,' wrote Bank of America analysts in their report. 'Once the split plan is executed, investors looking to gain or increase exposure to the stock may start buying aggressively.'

Following the stock split, prices of these shares will decrease, meaning high-quality stocks with strong fundamentals can attract more investors who were previously hesitant due to high prices. Amid multiple headwinds such as sell-off pressures and geopolitical crises currently weighing on US equities, stock splits by quality companies could be one of the few events in turbulent 2022 that boosts investor confidence.

4. When will the vote on the stock split proposal take place?

It should be noted that the stock split requires board approval, but Tesla has yet to announce the date for this year’s annual shareholders meeting.

Tesla's annual shareholder meetings were held in June during 2017, 2018, and 2019. However, due to the COVID-19 pandemic, they were postponed to September and October in 2020 and 2021, respectively. It remains uncertain whether this year’s meeting will return to summer.

Dear fellow investors, Tesla's stock split plan is back!

How do you think it will split? What will Tesla do tonight?

Will the market re-enact the previous big rally?

112

1.2M Views