Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla, the trailblazing electric vehicle, energy, and technology company, stands out in its industry. Not only did it make electric cars mainstream, but it's also characterized by its eccentric CEO, Elon Musk, who adds a unique touch to the company's identity. Tesla even ventured into clothing apparel, subtly mocking skeptics who once doubted its capabilities.
One distinctive aspect of Tesla's corporate landscape is its relationship with shareholders. Unlike many corporations, Tesla boasts a significant base of individual investors, and notably, it has already executed two stock splits for their benefit.
As a new bull market gains momentum, signaling positive market conditions, it raises the question: Could Tesla be gearing up for another stock split? To explore this possibility, let's first understand why companies opt for stock splits.
Companies decide to split their stock for a couple of reasons. A stock split involves dividing existing shares into a higher number of smaller ones, akin to cutting a pie into more slices for wider distribution.
Consider owning 10 shares of a stock priced at $100 each, totaling $1,000. If the company opts for a 4-to-1 stock split, each share transforms into four. Consequently, your 10 shares become 40, now trading at $25 per share. While the total value of your investment remains $1,000, you now hold more shares at a lower individual price.
It's crucial to note that a stock split doesn't alter the fundamental value of the stock. The overall value of the company doesn't change - it's like redistributing the slices of the pie without altering its size.
So, why do companies go for stock splits? Firstly, it makes it more accessible for individual investors to accumulate shares. Additionally, it generates excitement and interest around the company, potentially boosting its share price in the short term. This strategic move aims to make the stock more attractive and inclusive for a broader investor base.
Tesla has a history of executing stock splits, having undergone two splits previously: a 5-to-1 split in 2020 and a 3-to-1 split in 2022 (see chart). The company has provided two primary reasons for opting for stock splits. Firstly, it issues stock to employees as part of their compensation, and dividing it into smaller shares facilitates better management of their ownership stakes. Secondly, Tesla acknowledges the significant support from individual investors and aims to maintain accessibility to its stock for this segment. Reports indicate that non-insider individuals hold approximately 44% of the company's outstanding shares.
Currently trading at just above $180 per share, Tesla's stock is a considerable distance from its 52-week high of $299. Given that Tesla did not split when it reached around $300, predicting another split might require the stock to reach new highs.
Investors are advised to pay closer attention to Tesla's recent fourth-quarter earnings report, which provides insights into the company's short- and medium-term outlook. Management has indicated that vehicle deliveries are expected to decrease in 2024 as Tesla prioritizes resources for the development of a next-generation vehicle design, anticipating this move to catalyze its next significant growth phase.
Despite the broader market achieving all-time highs, the projected decline in production could impact Tesla's stock performance. Ultimately, the key consideration for investors is whether they believe Tesla will continue to grow and deliver value to shareholders. With opportunities in electric vehicles, energy storage, and artificial intelligence, Tesla's stock has already yielded remarkable returns, reflecting its potential for future success.
For those hesitant to buy whole shares, exploring stock brokers that allow fractional shares can enable investment with a fixed dollar amount, irrespective of potential future stock splits. Including Tesla in a diversified and long-term-oriented portfolio may offer the benefits of investing in a promising company with growth potential.
As long as the price is below 210.00, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 180.10
- Take Profit 1: 180.00
- Take Profit 2: 160.00
Alternative scenario:
If the level of 210.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 210.00
- Take Profit 1: 225.00
- Take Profit 2: 235.00
