Tesla Announces Plans for a Stock Split.Does That Make the Stock a Buy? - Dailyforextrading

Tesla Announces Plans for a Stock Split.Does That Make the Stock a Buy? - Dailyforextrading

When it comes to the ongoing, widespread adoption of electric vehicles (EVs), no company deserves more credit for kick-starting the current trend than Tesla ( TSLA 0.71% ).

Since introducing the Roadster in 2008, the company has gone on to become the industry leader and one of the few pure-play EV manufacturers to boast a profit.

The company's robust financial performance has paved the way for a surging stock price. Tesla shares have climbed roughly 74% over the past year.

While that's impressive in its own right, over the past five years, the stock has climbed 1,890%, and over the past 10, they've gained an eye-popping 14,000%.

On Monday morning, Tesla turned heads when it submitted a filing with the Securities and Exchange Commission (SEC) that laid the groundwork for a stock split -- it's second in less than two years. This is causing some investors to take a fresh look at the EV maker.

The details

Tesla said in a regulatory filing Monday that its board of directors had given preliminary approval to a proposal to increase the number of authorized shares of common stock in the form of a stock dividend. This will ultimately require shareholder approval resulting from an amendment to the company's Restated Certificate of Incorporation.

The company plans to request stockholder approval for the move at Tesla's 2022 Annual Shareholder Meeting. While the date has yet to be announced, the meeting has historically been held in the fall.

It's important to note that Tesla has not yet provided details regarding the timing of its anticipated stock split or what the ratio for such a split might be.

The revelation comes in the wake of a 20-for-one stock split announcement by search giant Alphabet in early February and a nearly identical announcement by e-commerce kingpin Amazon weeks later. Just last week, medical device maker DexCom (NASDAQ: DXCM) joined the fray, detailing a four-for-one stock split after a shareholder vote in May.

Investors and stock splits

Stock splits have been all the rage in recent years and have proven immensely popular with investors. The mere announcement that a company is splitting its shares can cause a temporary run-up in the stock price. Some cite investor psychology as the underlying catalyst for driving shares higher.

There's certainly anecdotal evidence supporting that assertion after investors rushed in to buy shares of several high-profile companies following stock split announcements over the past couple of years.

Apple shares jumped 34% in the month following its July 2020 announcement of a four-for-one stock split. The move was even more pronounced when Tesla announced a five-for-one stock split less than two weeks later, with shares surging 81% higher between the date of its announcement and the start of split-adjusted trading on Aug. 31, 2020.

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There was a similar occurrence last year when programmatic advertiser The Trade Desk unveiled its 10-for-one stock split and chipmaker Nvidia detailed plans for a four-for-one stock split.

Shares of The Trade Desk and Nvidia climbed 27% and 24%, respectively, between the days of their respective announcements and the completion of the splits.

That popularity of these moves notwithstanding, it's important to note that a stock split does nothing to improve the operational fundamentals of a company or its long-term financial performance, so any short-term increase in the stock price will need to be followed by robust operational and financial results, or the gains could be fleeting.

Does that mean Tesla stock is a buy?

While investors shouldn't buy Tesla stock simply because the company has announced plans for a stock split, there are plenty of other reasons to be bullish on the EV maker.

The company set a new record in the fourth quarter with deliveries of 308,600 vehicles, sailing past analysts' consensus estimates of 267,000. This brought the full-year total to 936,172, also ahead of expectations of 897,000. This could be just the beginning.

Just last week, Tesla delivered the first EVs from its recently opened Gigafactory outside Berlin, Germany, which significantly increased Tesla's production capabilities.

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The company is also just days away from the opening of its newest manufacturing facility in Texas, which is scheduled for April 7. Source: The Motley Fool...



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