Tesla's stock split looks like nothing more than a cynical ploy to ignite a short-term price pump at the expense of Robinhood speculators.
Tesla (NASDAQ: TSLA) announced a five-for-one stock split, following the example set by Apple over a week ago. The electric carmaker will provide existing investors with four additional shares for every share they own as of August 21.
Tesla stock will begin trading on a split-adjusted basis from August 31, just like Apple. The company claims this will make its stock more “accessible to employees and investors.”
This is incorrect. As with the Apple four-for-one stock split, Tesla’s move looks like a cynical ploy to pump its overall market cap.
And it seems to have worked.
Tesla stock had already ballooned more than 200% year to date, and the five-for-one split announcement added more nonsensical fuel to the bewildering rally.
As of 10:03 am ET, TSLA shares had spiked 6.7% to $1,463.
Retail investors appear to be excited by the news. Twitter is inundated with casual traders lining up to bow at the altar of Elon Musk.
Some are predicting that Tesla’s stock price will rise even higher as investors clamor to buy before August 21.
Robintrack data suggests that Tesla has already witnessed an increase in popularity. Nearly 3,500 additional Robinhood users have bought TSLA stock over the past 24 hours – bringing the total to 545,000. This figure will rise even higher as news of the split spreads.
It’s hard to believe Tesla’s five-for-one split is really about making “stock ownership more accessible to employees and investors.”
If its stock ownership weren’t already accessible, it wouldn’t have risen by over 200% since January. It’s already perfectly accessible, thanks in part to the existence of fractional share trading. This lets you buy, say, a fifth of a Tesla share at a fifth of the price.
Casual investors don’t seem to have any problem acquiring TSLA shares, as indicated by the popularity of the company on Robinhood. It’s the eighth most owned stock on the platform.
Tesla was all too aware of what impact announcing a stock split would have on its share price.
Experienced analysts have consistently warned that the stock is in a bubble. And even after the nominal price of a single share gets diluted by 80%, Tesla’s market cap will remain in a bubble.
As today’s inexplicable feeding frenzy demonstrates, all a stock split will do is cause prices to spiral even further out of control.
For inexperienced investors, the chance to receive four “extra” TSLA shares for nothing is too hard to resist. They think the stock split is effectively a chance to get in on the “ground floor” or buy shares at a “discount.”
Their optimism may be rewarded – temporarily. But with Tesla still making only slim profits – and reporting a 4% annual decline in automotive revenue in Q2 2020 – it’s hard to shake the suspicion that it’s ridiculously overpriced.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the stocks mentioned.
Last modified: September 23, 2020 2:19 PM