Tesla will request approval for the split at its coming shareholder meeting.
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Tesla laid the groundwork on Monday to split its stock again, and investors looked pleased. Based on what happened last time Tesla split its stock, there is a good reason for investors to be happy.
Tesla (ticker: TSLA) stock was up 5.8% at about $ 1,069.52 a share in early trading. The S&P 500 was off about 0.1%, while the Dow Jones Industrial Average slipped 0.2%
The news came in a regulatory filing that indicated the company will request stockholder approval at its coming annual meeting to increase the number of authorized shares of common stock “in order to enable a stock split.”
Tesla’s board has approved the plan to increase the amount of authorized stock, but the board hasn’t approved the actual stock split yet.
Tesla announced a 5-for-1 stock split in early August 2020. Shares gained an incredible 80% from just before the split announcement until the time the split became effective at the end of August. The run that pushed the stock up that much happened over about three weeks.
Both the possible split referred to Monday and the 2020 split are, technically, stock dividends. “The Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors,” read Tesla’s press release back in 2020.
The number of common stock outstanding shouldn’t matter all that much, but there is the point Tesla makes about making stock accessible to more retail investors. A $200 stock is easier to buy than a $1,000 stock.
What is more, investors can get excited about stock splits because they signal management’s belief in strong company fundamentals.
Google parent Alphabet (GOOGL) announced a 20:1 stock split in early February. Shares jumped 7.5% following the announcement. The stock is still up about 3% since then, compared with a 1% loss for the Nasdaq Composite.
Shares of Amazon.com (AMZN) jumped 5.4% after it announced plans to split its stock 20:1. Shares are up about 18% since the early March announcement, compared with a 7% gain in the Nasdaq over the same span.
Tesla stock was at roughly $500 a share when its 2020 split became effective. Shares closed at $1,010.64 on Friday. Another 5-for-1 split would put shares at around $200. At that price, Tesla stock would even fit in the Dow Jones Industrial Average. It already belongs to the S&P 500.
The Dow is a price-weighted index. The price of each stock is what matters when calculating index changes. The S&P 500, on the other hand, weights its components by market capitalization. Stock prices in the Dow range from about $47 for Walgreens Boots Alliance (WBA), to about $513 for UnitedHealth (UNH).
The possibility that Tesla could join the Dow is only speculation. That would be a feather in Tesla’s cap, but having Tesla in the Dow wouldn’t bring a lot of index-related buying of shares. There isn’t a lot money indexed to the Dow.
The last time Tesla stock split, it rallied from about $500 a share to more than $700 by the end of 2020. Tesla stock was added to the S&P at the end of 2020, giving shares another boost.
The news of the split has trumped a bit of bad recent news for the company. Tesla’s Shanghai plant is shutting for a few days because of Covid-related restrictions in the area, according to reports.
The shutdown comes just before quarter end and could cost the company a few thousand vehicle deliveries. Wall Street expects Tesla to deliver 310,000 to 320,000 vehicles in the first quarter of 2022. Tesla didn’t immediately respond to a request for comment about the shutdown or its effect on deliveries.
Write to Al Root at [email protected]
