Source: PaxForex Premium Analytics Portal, Fundamental Insight
Tesla is set to hold a second stock split the day after tomorrow. Shareholders approved the 3-to-1 split at the company's annual meeting this month.
If you don't know what a stock split is, below is information on how it happens so you can determine your expectations.
Big tech companies are leading the way in split news this year. Amazon held its first 20-to-1 stock split since the dot-com boom on June 3. E-commerce giant Shopify held a 10-for-1 split of its common stock on June 28. Then Google's parent company, Alphabet, completed a 20-for-1 stock split on July 15.
Now Tesla is back in the spotlight after a 5-for-1 split in 2020. The electric car maker hinted at a demo earlier this year, and now the big day is coming.
The stock split doesn't happen overnight. The company has to file paperwork with the SEC to express its intentions, and then shareholders have to give the company the green light.
Stock splits may be popular, but that doesn't mean they will be profitable. By itself, a split will not increase a company's market capitalization or change its intrinsic value. But it does increase the number of shares of the company's stock outstanding. You will have more company stock in your account, but the total value of your stock will not change. That's why the stock split itself is not a taxable event. It will not add money to your pocket as a result.
Let's take a look at the Tesla stock split. The company conducts a 3-for-1 split. This means that investors will receive two additional Tesla shares for every one share they own.
If you own five shares of Tesla stock, you will receive 15 shares of the company after the split. If you own 10 shares of Tesla stock, you will have 30 shares later. If you own fractional shares, you will still have a chance to take advantage of this event. You'll just have to do the math to see how your fractional shares will multiply after the split.
Shares split can be compared to getting slices of pizza. If you have a whole pizza, you can cut it into three equal pieces, like a 3-to-1 stock split. The amount of pizza you have will remain the same. When you slice it, you are splitting it into pieces to make it easier to consume.
Stock splits make it easier for investors to buy whole shares of a company by lowering their price. If Tesla stock was worth $900 before the stock split, a 3-for-1 split will bring it down to $300.
The split helps make high-priced stocks more accessible to retail investors. But it doesn't matter much these days, since many investors can buy stocks by buying split stocks. However, some investors like the idea of buying a whole Tesla stock. Split opens the door for more investors to accumulate whole shares of the company in their portfolios.
While a stock split sounds fancy, it is more of a cosmetic change. It doesn't define a company's long-term potential. Don't fall into the trap of believing that stock splits automatically lead to profitability. Do your research before investing in any stock - even if the company plans to do a split. Examine fundamentals, assess management style, and conduct a competitor analysis to see if the company deserves a place in your portfolio.
As long as the price is above the 780.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 889.39
- Take Profit 1: 940.00
- Take Profit 2: 1000.00
Alternative scenario:
If the 780.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 780.00
- Take Profit 1: 700.00
- Take Profit 2: 650.00
