Like it or hate it, Tesla (NASDAQ: TSLA) Undeniably one of the greatest success stories of the past decade. Since listing shares in 2010, Tesla’s shares have skyrocketed and the electric car maker has defied industry protests by ramping up production and becoming the most valuable car maker on the market. Earth.
Along with the stock price hike, Tesla has demonstrated its financial and basic performance. By being consistently profitable, Tesla has the ability to participate S&P 500 index (SNPINDEX: ^ SPX) in the near future. However, by making an incredibly surprising move on August 11, CEO Elon Musk showed his usual flair for drama – and made his case for why. Tesla should be involved Dow Jones Industrial Average (DJ INDICATOR: ^ DJI).
Overcome the final sprint on Tesla’s path to the Dow Jones
Until Tuesday, there was a seemingly insurmountable obstacle that could keep Tesla from joining the Dow Jones Industrials. Its share price of nearly $ 1,400 per share at the close of August 11 would make it an unrealistic option to enter price-weighted averages, because of its impact. for the entire industry the Dow Jones will be very high. Even now, the reality is apple Having a weight of almost 11% in the Dow is controversial, and that’s with Apple’s share price of just $ 450. The idea that Tesla has a 30% representation is not entirely smart.
However, Musk surprised everyone by doing something Tesla never did before: splitting his stock. It announced a 5-for-1 split to record holders on August 21, with the stock going to begin trading on a split correction basis a week and a half later on August 31.
To be clear, Tesla’s board of directors didn’t make it clear that they were trying to join Dow. In its press release, the company cites a desire to “make stock ownership more accessible to employees and investors.” However, with the advent of fractional trading, that is an argument that is increasingly difficult to make. And certainly being one of the Dow 30 stocks will be a big boost for Musk.
One might also consider the 5-to-1 option a testament to Musk’s vanity. With Wednesday morning’s stock price hike to nearly $ 1,500 a share, a 5 to 1 ratio would put Tesla stock around $ 300 after the split took effect. That would make Tesla the third most influential stock in the Dow Jones, behind only Apple and UnitedHealth Group and gives an average share for electric car manufacturers around 7%.
Why Tesla is in the Dow is not a crazy proposition
With the share price issue resolved, the case of Tesla joining Dow is convincing:
- Dow hasn’t had an auto company for more than a decade after spending most of its history with at least one.
- Tesla’s more than $ 250 billion market capitalization puts it in a third of existing Dow components.
- Its solar exposure would also increase the width of the Dow, complementing the two major oil companies currently standing in its ranks. Its other neighboring industrial applications will also drive medium industrial origins.
The best argument against Tesla’s entry into the Dow is a relatively new company. Most current Dow members have a pedigree dating back to decades. However, this move will not be unprecedented. Microsoft has only been publicly traded for 13 years before it joins the average, and Passport into the Dow Jones in 2013, just five years after its IPO in 2008.
That was the move of Dow Jones
Also, the great uncertainty over Tesla’s entry into the Dow is largely due to the lack of any clear candidate being dropped to make room for the automaker. Although some companies have low stock prices that give them a negligible influence on the Dow as a whole, their underlying business remains solid.
Now, however, the ball is in the discretion of Dow Jones manager, S&P Dow Jones Indices to decide what to do next. If a vacancy does appear in the Dow Jones Industrials, investors should expect Tesla to take a closer look, thanks to Elon Musk’s decision to split stock.