Tesla Stock Won’t Get the Bump It Expects From a Stock Split
Tesla (NASDAQ:TSLA) stock has become a little more interesting since announcing it may attempt a 3-for-1 stock split.
In a recently filed proxy statement, Tesla said that it will seek shareholder approval at its Aug. 4 annual meeting. If approved, this will be Tesla’s second stock split in fewer than two years.
The company executed a five-for-one stock split in August 2020, leading to a 60% surge in the share price from the day of the announcement to the execution date.
Market conditions are much less favorable right now and might continue to conspire against Tesla’s share price, which is down 40% year to date. In January, Tesla had a market capitalization of $1.15 trillion. Today, its market cap sits at $722 billion.
A Closer Look at TSLA Stock
Tesla is the latest among several large-cap technology companies to announce stock splits this year as markets and their share prices sink.
Google parent company Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) each announced 20-for-1 stock splits this past winter as their respective stocks slumped. However, since the stock splits were announced, both shares have fallen more than 25%.
On June 6, AMZN stock began trading on a split-adjusted basis of $123. But since then, the share price has fallen to $108. Through six months of the year, Amazon stock is down 36%.
The companies see stock splits as a way to attract and retain price-sensitive retail investors, leading to more buying of their shares and bidding the price higher in the process. However, the timing for the stock splits could not be worse given current market conditions.
The last time Tesla split its stock in the summer of 2020, it was in the middle of the pandemic rally when its share price was sitting at an all-time high. Today, both the S&P 500 and Nasdaq indices are in a bear market, having plunged more than 20% since January. Investors are selling securities, especially growth plays such as TSLA stock.
Other Issues
The upcoming 3-for-1 TSLA stock split is just one of several pieces of news to surface about Tesla recently, most of it not very positive.
At the same time the company announced the stock split, it said that Larry Ellison will step down from its board of directors.
Ellison, who is one of the richest people in the world with a net worth estimated at $87 billion, is the co-founder of software company Oracle (NYSE:ORCL). He joined Tesla’s board of directors in 2018 and currently has a 1.5% stake in TSLA stock. Losing Ellison at the boardroom table is viewed as a blow to Tesla’s oversight and strategic direction.
Separately, Elon Musk has been feuding with his own workers, ordering an end to remote work, announcing a 10% reduction of salaried employees, and firing Tesla’s Singapore country manager — all of which generated headlines around the world.
The workforce issues arise as Tesla is grappling with Covid-19 lockdowns in China that hindered its production in May and early June, Beyond that, the company must reckon with a host of other issues ranging from supply chain bottlenecks to regulatory investigations into the safety of its electric vehicles. These issues continue to weigh on TSLA stock even as investors’ appetite for risk wanes.
Don’t Buy TSLA Stock Ahead of The Split
While the 3-for-1 stock split will certainly make Tesla’s stock more affordable, there’s no guarantee that it will lead to a rally in the share price.
Deteriorating market conditions and gloomy investor sentiment are working against Tesla right now. The market is not in the same place it was when Tesla last split its stock. On top of that reality, the electric vehicle maker faces a number of challenges that are pulling its share price lower.
While some issues will be resolved in the coming months, other problems could last longer and worsen. Given all these factors, investors would be smart to wait for Tesla stock to split and see where the overall market is headed in the coming months. At this time, TSLA stock is not a buy.
Disclosure: On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
