Tesla recently announced that a stock split could be in its future. Is it time to buy?
Tesla (TSLA -5.59%) has been making headlines recently after it announced it would be seeking approval for a stock split later this year.
While it's still in the early stages and few details are known about the potential split, Tesla has seen its stock price surge since the announcement in late March. And after the company's last stock split in August 2020, the stock soared by roughly 80%.
It's impossible to say whether the potential upcoming stock split will trigger such impressive returns. But if you've been on the fence about investing in Tesla, is now the time to buy?
Image source: Getty Images.
What does a stock split mean for Tesla?
A stock split is when a company divides its shares into smaller slices, reducing the price in the process. If Tesla stock currently costs around $1,000 per share and the company opts for a two-for-one stock split, for example, that means there will be twice as many shares available at half the price, or $500 per share.
In reality, stock splits don't change much about the stock. The company's market value remains the same. Those who already own the stock will have more shares after a split, but the overall value of the stock won't change.
However, stock splits can make expensive stocks more appealing to investors on a budget. Paying $1,000 for a single share of stock is unrealistic for many investors. But if the price drops to, say, $200 per share after a stock split, that may be closer to the average investor's budget.
Should you invest now or wait?
When it comes to the actual value of the stock, it doesn't necessarily matter whether you buy now or wait until after the split. Again, stock splits don't change the company's valuation, so you're not necessarily getting a deal by investing at a lower price -- you simply own a smaller stake of the company.
The advantage of investing now is that you'd reap the rewards if a split drives up the price of the stock, similar to what happened in 2020. Stock splits can sometimes spark renewed interest in a company, encouraging investors to buy at a lower price. If that happens, you could see substantial gains by investing now before the split.
That said, whether Tesla's price will surge is anyone's guess. Nobody knows when this potential split will happen, and the economic climate is different now than it was in 2020 during the last stock split. That makes it tough to tell how the split will affect Tesla's stock price.
Is Tesla the right investment for you?
If you're considering buying Tesla, make sure you're investing for the right reasons. While stock splits can be short-term catalysts for growth, they alone are not a reason to invest.
Before you buy any stock, consider whether that company would make for a solid long-term investment. If an organization has solid underlying fundamentals, it's more likely to succeed over time -- and its stock price will increase as a result. Some of the factors to consider include:
- The company's financial situation
- Whether it has any competitive advantages in its industry
- Any roadblocks that could hinder growth
- Its leadership team and whether that team can guide the company through rough patches
The best investments are the ones that are most likely to see consistent growth over the long run. While Tesla's stock split could help it grow, make sure you're looking at the big picture before you buy. The more research you do, the easier it will be to decide whether Tesla is the right investment for you.
Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns and recommends Tesla. The Motley Fool has a disclosure policy.
FAQs
The short answer is it doesn't matter, and here's why. As mentioned earlier, a stock split doesn't change the value of the company or the value of an investor's holding. If you buy one share today or 10 shares after the split, you'll be investing the same amount of cash.
Is Tesla a buy Motley Fool? ›
Tesla is a global leader in the EV industry, so over the long term, it should benefit from the tailwind of a greater push toward sustainability. And once interest rates start declining again, demand for these cars will pick back up.
What does Warren Buffett think about Tesla stock? ›
Buffett likely wouldn't agree. That's because Tesla's shares TSLA, -1.39% have far different characteristics than the kind of stocks that Buffett over the years has favored.
Is Tesla a buy in April 2024? ›
Tesla stock has retreated about 30% in 2024. However, since Tesla reported first quarter earnings and revenue on April 23, it has rallied and is finding support at its 50-day moving average, according to MarketSurge analysis. Tesla stock hit a 52-week low of 138.80 on April 22.
Do stocks usually go up before a split? ›
Of course, some of that outperformance may be because companies that tend to undergo splits usually do so only after a run of success where their stock prices have climbed strongly. And a stock split doesn't guarantee an ensuing rise in price.
Is there a downside to stock splits? ›
Disadvantages of a Stock Split
A company cannot rely on a stock split to increase its value or market cap. A stock split divides the existing shares, thus keeping the market cap the same as before. Not to forget, a company must invest some amount to conduct a stock split.
Why not to invest in Tesla? ›
Another reason to avoid buying Tesla is because of the valuation. Even though shares are currently 56% off their all-time high, they still trade at a steep price-to-earnings ratio of 46.2. This tells me that the market still values Tesla more like a tech enterprise and less like a traditional car company.
Where will Tesla be in 5 years? ›
When CNBC asked what Tesla would be worth in five years, Wood confidently said $2,000 per share. The $2,000 per share figure is not new, either. In April 2023, Ark Invest published its valuation model for Tesla with the same price target and the expectation of reaching it by 2027.
Is Tesla a buy, sell, or hold? ›
Is Tesla stock a Buy, Sell or Hold? Tesla stock has received a consensus rating of buy. The average rating score is and is based on 46 buy ratings, 32 hold ratings, and 16 sell ratings.
Who owns the most shares of Tesla stock? ›
Even those who don't keep close tabs on Tesla (NASDAQ: TSLA) are surely familiar with Elon Musk and the commanding position he plays in the company's operations. Musk is also the largest shareholder of Tesla stock.
Based on 32 Wall Street analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $174.60 with a high forecast of $310.00 and a low forecast of $22.86. The average price target represents a -2.34% change from the last price of $178.79.
What does Warren Buffett suggest to invest in? ›
Key Points. Warren Buffett made his fortune by investing in individual companies with great long-term advantages. But his top recommendation for anyone is to buy a simple index fund. Buffett's recommendation underscores the importance of diversification.
Is Tesla a good investment long-term? ›
The opportunity at hand today
From a pure EV perspective, it might be difficult to justify an investment in Tesla. While it will continue to increase its EV production capabilities in years to come and will benefit from increasing adoption of EVs around the world, the true potential for Tesla is from its AI endeavors.
What is a good price for Tesla stock? ›
Overall, 43% of analysts covering Tesla stock rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Tesla shares is about $183 each.
What is the Tesla forecast for 2025? ›
Tesla Stock Price Predictions for 2025
In 2025, #TSLA could range between $22 and $389 per share based on the most bullish and bearish projections. The bullish outlook reflects projections for surging demand in the electric vehicle industry combined with Tesla's dominant positioning and technical edge.
When should I invest in stock splits? ›
Stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors. Therefore, a split is often the result of growth or the prospects of future growth, and it's a positive signal.
What happens to stock price before split? ›
It remains fixed and is decided at the time of issuance unless there is a stock split. In a stock split, since the same shares are being split in a certain ratio, the face value also gets split in the same ratio. If the face value was Rs 10 before stock split, it will become Rs 5 per share after the split.
Is it good to buy shares before a bonus? ›
Its better to buy shares before bonus issue because the bonus shares get credited after the ex bonus date. But the company which you have invested into, must be a good and a great business then only, your investment would grow over the long run.
Do you make more money when a stock splits? ›
A stock split doesn't add any value to a stock. Instead, it takes one share of a stock and splits it into two shares, reducing its value by half. Current shareholders will hold twice the shares at half the value for each, but the total value doesn't change.
