$Tesla Motors(TSLA)$ as we all know announced on 28th Mar 2022, seeking shareholders' approval in the up coming Annual meeting.
https://s3.amazonaws.com/fioaddon-siftstorage/EdgarFilingsHtml/0001564590-22-011875/tsla-8k_20220328.htm
While is good news given that Market reacted awesomely well, care as to what extend .would such stock increase justified its fundamentals.
Current Stock Price at at 29 Mar, minutes after market opens
Flash Back
Last stock split was on 31 August 2020, with the annoucement back then 5 for 1 split which gives the stock price soar to the moon... (well almost) landed around USD 2,000 per share.
With the current excitement airing loudly, its seems that history might repeat itself [Doubt] ?
The Good
Stock Split aka Stock Dividend, generally increases the number of outstanding shares in order to healthy stock's liquidity. This would indirectly encourage small time investors to participate as the stock price is now more affordable and hence the liquidity terms. Most companies like $Apple(AAPL)$ and $Amazon.com(AMZN)$ does it, except for Warren Buffett CEO of Berkshire Hathaway do not believe so. He quotes "When stock can be bought below a business’s value it is probably the best use of cash" which probably the best way to increase the company's value through value investing.
Typically, a company strong MOAT and competitive advantage over a period of time, the stock price would increase. Note also that each business cycles, there would be macro-economic factors that might influence or effects the company's fundamentals. Hence it would be wise to slightly prudent to avoid too much Dollar Averaging.
Stock Split would enable Selling Put options more viable. With a stock price of USD 1,100, it could easily require a standby capital of USD 110,000 in order to open such position. Whereas a stock price of USD 11 (say Stock Split of 100-for-1) would requires a fraction of its price, ie USD 1,100.
The Bad
Stock Split ideally makes the stock price more 'affordable' hence would create more volatility (liquidity) which would put investors at slightly higher risky position. This won't be the case if he/she is a trader.
Stock Split does not actually increases the company's value. Its basically generating more number of shares in the market with the same value before the Stock Split.
Example:
A company having 1,000 shares at USD 5/share (USD 5,000).
Upon Stock Split of 10-for-1, A Company would 10,000 shares at USD 0.50/share (USD 5,000).
The Ugly
TESLA's first quarter delivert due on 2 April. The Wall Sheet expect between 310,000 to 320,000 units delivered. Given that Covid-19 restrictions and shortage of parts, if TESLA manage to pull it off, it would much projected in its stock price. According to Trainer from Yahoo Finance, to justify stock price over USD 1,000 TESLA need to sell 16million cars per year (2021 TESLA only manage to sold 1 million cars).
Does this means that TESLA's fundamental value base on current stock price (of over USD 1,000) is justificable or perhaps investors are forward looking with some risk appetite to digest?
Happy Investing and Stay Safe Everyone![Cool]
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