Tesla 3-for-1 Stock Split Announced: Buy Now?

Aug. 4: Tesla shareholders approve 3-for-1 stock split. Tesla stock will start trading at the revised split price on Aug. 25 and outstanding shares will reach 4 billion. Tesla split its shares to boost demand.

Tesla’s Q2 results above expectations. Next day, shares jumped 10%. They’ve risen ahead of Tesla’s split. Tesla shares climbed over the 50-day moving average on July 8. It’s trying to get above its 200-day line but hitting resistance. The stock is below previous highs.

After the split vote, Tesla shares plummeted 6.6% on above-average volume. The share price isn’t right. MarketSmith chart analysis shows a daily consolidation with a 1,208.10 buy point. Tight trading range at current levels could offer ambitious traders an alternative entry, but the stock needs more time.

When a firm divides a share, it creates several new shares. A 2-for-1 split halves the share price but doubles the number of outstanding shares. Companies split shares when the price rises. The stock’s lower price draws more purchasers. Before, investors couldn’t afford a stake. A split doesn’t affect the company’s worth.

Reverse splits lower outstanding shares. Financially troubled companies typically declare a reverse split to prevent delisting. A $5 per share corporation can do a 1-for-2 reverse split to reach $10 per share. 100 million outstanding shares would shrink to 50 million.
Stock splits affect my investment.

After a stock split, your holdings’ value will remain the same. More shares are yours.

Same idea applies to fractional shares. If you possess half a company’s shares and it splits 2-for-1, your holdings double. So you’d own one share.

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How about dividend-paying stocks? After a split, dividends are usually lowered correspondingly per share to account for more shares. This doesn’t effect dividends.
Splits and options.

Suppose you hold a stock call option and a split is announced. Next?

If you have a split stock options contract, it will be adjusted. The entire worth won’t change despite the new price and number of shares. “Becoming entire” describes this.

In our 2-for-1 split scenario, an option contract covering 100 shares at $100 would now cover 200 shares at $50.
Performance of Splits

Dow Jones data shows that from 2012 to 2021, S&P 500 equities climbed 12 percent the year after a company split. In the previous several years, the S&P 500 has seen the most stock splits in nearly a decade.

Past market tops have seen excessive stock splitting, especially in 2000 with tech stocks. QCOM split 2-for-1 in May 1999. In 1999, the corporation split its equity 4-for-1. QCOM stock soared 840% after the 1999 stock split. On the first trading day of 2000, shares soared from 21 in April 1999 to 200.
Splits: Sell or Hold?

Investors like stock splits. Fast splits may be a warning to sell.

Higher-priced stocks attract quality-focused investors. While that reduces the buying audience, it increases smart-money sponsors.

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Early splits rarely cause issues.

Initial splits can boost stocks, especially early in a bull market. Multiple 2-for-1 and 3-for-1 splits within a year or two can cause complications. Tesla stock split 5-to-1 in August 2020.
Investors’ Takeaway

A stock split allows buyers to buy a previously pricey stock for considerably less. Never buy a stock because it split. Do your research, check stock charts for the perfect time to buy, and focus on top-performing firms with strong fundamentals.

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