Apple Inc. recently announced a stock split that would lower its share price and make it more accessible to new investors. Tesla Inc. (NASDAQ: TSLA), which recently became the highest valued automaker in the world, has now announced a similar move.
The company announced that it will split its stock for the first time, reducing share price by around 80%. Existing investors won’t lose value in their portfolios, because every share will be converted when the split is enacted on August 31.
How Tesla’s Five for One Stock Split Will Work
Tesla will convert every existing share to five shares by August 31. Any investor holding shares at the end of this month will automatically see their holdings split. Effectively, the number of available shares will increase, bringing the overall stock price down.
Tesla has made the decision based on several key factors. The company’s stock has grown significantly over the previous 52 weeks, from $211.00, right up to its $1,565.92 price during premarket today. Stock growth increased the market capitalization, but it also put the stock out of reach for many new investors. The company wants more capital in its stock, and splitting the shares is the easiest way to do it.
The split is likely to attract new investors who were previously priced out of the company. With the news that Tesla is now the highest valued global automaker, interest in the stock is at an all-time high.
What Should Existing Investors Do?
The stock split will be fully automated as far as individual investors go. Shareholders will receive their new allocations. An investor holding a single share today will hold five at the end of the month.
The split won’t devalue portfolios, but it will make existing positions more flexible. Investors who want to reduce investment in the company can now do so incrementally without losing their positions completely. The new split also means that existing investors can increase their positions at the end of the month, without having to go all-in with the price as it is today.
Stock splitting is a technique used by many of the largest stocks in the market. Microsoft Corp. has one of the largest market capitalizations in the world, yet its stock currently trades close to $200. This is because the stock has been split nine times since 1987. Splits keep mega-cap stocks affordable.
New Investors May Prefer to Wait for Updated Pricing
Any investor considering the stock today should consider waiting until the end of the month before buying Tesla shares. The split is likely to drive trading activity, so the real value of the stock likely won’t be seen until the days following August 31.
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