Tesla (NASDAQ: TSLA) Shares made good gains Wednesday after the electric automaker will split its stock later this month. Shareholders will receive five new shares for each share they own. The combined value of those shares will be equal to the value of one of the pre-split shares valid at the time of the split.
Would investors be better served to buy this bull market stock right now? After all, after the year-for-one share split, Tesla stock will be more accessible to many investors. Shares are trading at around $ 1,550 today – assuming they’re still in that neighborhood, the electric car maker’s split-adjusted stock price would be around $ 310.
To buy or not to buy?
There are actually two questions here.
- Will Tesla stock be bought? because of About its upcoming stock split?
- Is the stock attractive right now, regardless of the pending split?
Let’s explore the answers for both.
The impact of the Tesla stock split
The first question is easy to answer. Is not. A stock split does nothing to make the company more valuable – and it won’t affect an investor’s view of the stock’s long-term potential.
Certainly, demand for stocks can spike as they become more accessible to more investors (among them, those who have not yet used brokerage services that allow retail stock purchases). Furthermore, similar increased demand is likely to occur as this move gives Tesla a greater chance of being added. Dow Jones Industrial Average; Some experts have noted that its current share price would be a deal breakout if it were included in the price weighting index. In the long run, however, Tesla’s share price will be primarily driven by the company’s underlying business – and the stock split doesn’t affect the business’s true, long-term potential.
But what about the second question? This requires a more thoughtful analysis.
Is Tesla really worth its market cap – $ 288 billion at the time of writing this? This answer will depend on whether it can continue to increase the number of vehicles it delivers annually at a rapid rate over the next decade and whether it can ultimately generate significantly higher sales. from its vehicle software or not. Both of these results are believed to be priced in today’s stock. With just $ 800 million in free cash flow after 12 months, the stock’s price-to-cash ratio is 360 a decade of staggering performance and massive sales growth. .
While Tesla may continue to dominate the electric car market and increase deliveries at a rapid rate over the next decade, the current valuation of stocks requires too much confidence for me to personally recommend buying. it’s at this level.