When CEO Elon Musk cryptically tweeted that the stock traded to high on 05/01 (May 1), he hinted the company would split Tesla stock 5:1. That announcement, which copies Apple’s (NASDAQ:AAPL) stock split by the end of the month, sent TSLA stock to all-time highs. The price-to-earnings, which means nothing these days, is 1055 times.
What happens next after the split?
At $2050, or $410 after the split, the shares outstanding increase from 186 million to 930 million. The increased liquidity could help increase short float availability. Novice investors will also think the stock is more affordable, even though the ownership amount in the company does not change.
The continued climb in Tesla stock ultimately depends on market sentiment and the Fed. So long as the Federal Reserve maintains its unusual commitment to propping market liquidity, Tesla stock may keep rising.
Valuations do not matter. Relative fundamentals do. For example, General Motors (NYSE:GM) is valued at a $40 billion market cap, compared to the $375 billion value in Tesla. The EV maker will continue expanding its factories, increasing the output of batteries, and improve its software. It will have a wide lead against the ICE (internal combustion engine) car makers.
Investors who enjoy a four-fold return in Tesla in 2020 may continue holding shares post-split.
Tech Insider
