Elon Musk’s EV company split its stock as the market opened on August 23, 2022. After the 3-to-1 split, Tesla shares were trading at around $302.
The stock was worth $890 before the split. At the time of writing, the price was $292.80. As a result, Tesla received two additional stocks for each Tesla stock they held before the split.
Meanwhile, the Tesla stock split may attract new investors due to the lower price. Consequently, investors tend to see stock splits as a positive move for a company.
How stock splits affect investors
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Investors see stock splits as a sign that a company sees potential long-term returns. That is why you might find online sources promoting the Tesla stock split as a signal to buy some.
Unfortunately, a stock split does not automatically mean long-term returns. After all, the stock price will still depend on how the company performs.
For example, if competitors like Rivian outperform Musk’s EV firm, they could attract more investors. They may even cause others to sell Tesla stock.
As a result, the share price may decrease despite the Tesla stock split. Cutting stocks into more parts does not significantly impact people who already own the shares.
Professor of Finance at the Heider Creighton University Robert Johnson spoke with TIME’s NextAdvisor regarding the Tesla stock split, saying:
“If you own 1% of the company before the split, you will own 1% of the company after the split.” An investor with Tesla stock worth roughly $900 will simply have three worth $300 each.
Some companies reject the idea of splitting their stocks. Specifically, those who offer growth stocks typically want the prices to be as high as possible.
They believe that having a massive price makes them more appealing to investors, so they avoid dividing their shares. On the other hand, companies with value stocks may want low prices to attract more investors.
Consequently, these firms are more likely to implement a stock split. Nevertheless, remember that other factors move stock prices, so investors should track those too.
Should you invest in Tesla stock?
The Tesla stock split decreased the price to a third of its original value. In response, Elon Musk may persuade more investors to buy his company’s stocks.
Many investors see it as a sign that the company may offer long-term yields. However, various market conditions still shift the possibilities for Tesla and its shares.
Note that this article does not offer investment advice. Speak to a financial advisor for professional assistance in building your portfolio.