Tesla announced a new five-step stock split that will take effect on August 28, which will make its stock cheaper for buyers.
Shares in the electric car maker closed Tuesday at $ 1,374.39 per share, close to its all-time high in July and with a total market valuation of more than $ 256 billion. But at such a high price, it is difficult for individuals – especially retail traders to use platforms like Robinhood – to own more of the company’s fractional stock.
If you owned Tesla stock before August 21, you will get 4 additional common shares on the split day. Starting August 31, Tesla said it would start trading on a split-adjusted basis.
Stock splits are often neutral for investors – you used to own one stock and now you own five shares, but the value remains the same. However, the split makes it easier for individuals – such as retail investors who use Robinhood, who prefer to participate in fast-growing technology stocks – to become full-time shareholders more easily. For Tesla, it helps counter the claims of their stock prices being inflated by reducing the total cost of a share by 80% and giving the company the look of a wide range of affordable and easy stocks. more access.
There are also a lot of other reasons, somewhat arbitrarily why a company, like Apple or Tesla, might want to split its stock, as outlined in this explanation by BloombergMatt Levine’s. Some reasons include the inability to move fractional shares between brokers as easily as full brokers, and concerns that overvalued stocks may impair liquidity. But in some cases, owning a lower priced, more accessible stock is great, especially when your average smartphone owner can easily throw some money at Robinhood and catch early transaction.
Currently, Tesla shares are up nearly 6% in overtime trading following news of the decision.