Tesla Inc on Tuesday declared a five-for-one stock split, sending the electric automaker’s already high-flying shares increase by 7% in extended trade.
Tesla’s stock, which traded at $1,475 following the announcement, is one of the highest-priced on Wall Street, and the Palo Alto, California-based company informed in a press release it was looking to make its shares more accessible to workers and investors.
Tesla’s stock has increased over 200% this year, while shares of General Motors and Ford Motor dropped following the coronavirus crisis.
Stock splits are one way for firms to make shares more accessible to retail investors, potentially attracting investors who make small trades. However, brokerages increasingly let consumers purchase parts of shares, making the benefit of share splits less clear than what it was before.
Tesla said stockholders of record on August 21 would get four extra shares after the close of trading on August 28, with the stock trading on a split-adjusted basis starting August 31.
Tesla’s stock split comes after a four-for-one split announced by Apple Inc in July, which was the iPhone maker’s first stock split since 2014.
Stock splits have become rare on Wall Street in recent times, with only three S&P 500 components announcing splits in 2020, compared with an average of 10 a year during the earlier decade, according to S&P Dow Jones Indices.
Tesla in July published a second-quarter profit as cost cuts and strong deliveries helped offset coronavirus led factory shutdowns, clearing a hurdle that could lead to the automaker’s inclusion in the S&P 500 index.
While many institutional investors have avoided the automaker’s stock in the last few years because of a lack of consistent profitability, the company has a strong following among individual investors.
During the last 30 days, Tesla was second after Apple as the most popular stock on the Robinhood trading app.
Tesla’s stock split should not impact S&P Dow Jones Indices’ potential decision to add the company to the S&P 500, which is weighted by companies’ total stock market values.
The share split will not make the company any less expensive in terms of actual revenues it delivers to investors. The stock presently trades at 112 times expected earnings over the next 12 months. By comparison, GM is valued at eight times expected revenues, and Ford at 45 times expected revenues.
