Is Tesla Stock a Buy After the Split?
By GARRETT BALDWIN, Behavioral Trading Specialist, Money Morning • September 2, 2020
Should we be excited that Tesla stock split 5 for 1?
If you drop a cookie on the floor and it breaks into five pieces, do you get excited because you now have five cookies?
A stock split does not change the value of the company. The bottom-line profit numbers do not change. You just use a higher number to calculate earnings per share.
The total equity value of the company does not change by so much as a nickel.
The split itself does not change the total market capitalization.
So, what should investors be doing right now?
Breaking Down the Tesla Stock Split
Uninformed traders who think Tesla stock is now cheaper because the price declined might change the cap a little.
Stock splits were far more important back in the days when trading less than 100 shares – an odd lot – was more expensive than a round lot. Since most brokerages do not charge commissions and many allow fractional purchases today, stock splits are just a headline generator.
A better argument might ask, "Should you buy Tesla for any reason?"
That argument has been raging for some time now. So far, the bulls are mauling the bears. Tesla is a ten-bagger in the last year.
It is not just retail hot money and Robinhood running the stock up. It takes some serious firepower to push a company from a $9 billion market cap to over $90 billion in just one year. That's not a bunch of college kids trading their betting money.
That's high net worth investors, hedge funds, and other large institutions piling into the stock on a regular basis.
That's also a lot of desperate short sellers willing to pay any price to get out and make the pain stop.
The bears point out that Tesla is incredibly expensive on a valuation basis. That's true.
t has been true for years now.
But how expensive is it?
How Expensive Is Tesla Stock Now, Really?
For the value of Tesla, you can buy Ford Motor Co. (NYSE: F), General Motors Co. (NYSE: GM) and Fiat Chrysler Automobiles NV (NASDAQ: FCAU), and still have a couple of billion left over.
Combined, the Big Three sold about 17 million cars last year.
Tesla sold 367,000.
The competition is also heating up in electric vehicles. Several groups are working in driverless cars, and some may well be ahead of Tesla right now.
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