Trading will begin on a stock split-adjusted basis on August 25, 2022. Tesla’s (TSLA -4.08%) 3-for-1 stock split proposal won shareholder approval at the 2022 annual shareholders’ meeting this month. Now, the electric vehicle maker is gearing up for its second stock split after close of trading on Aug. 24.

Is there anything else investors should know about stock splits?

1. Public companies are capped with respect to how many shares they’re allowed to have in circulation, which is enforced by the SEC.
2. Options are affected the same way shares are, assuming they expire after the day of the split.
3. To that end, Tesla is entering an interesting period in its evolution.
4. For instance, if their ballpark estimate of the stock’s value is somewhere between $200 and $300 per share, they could require shares to trade at a significant discount to their estimate before considering buying.
5. Second, Goldstein points out that the act would require a growing percentage of « critical materials » used to build EVs be extracted or processed domestically, or in those countries where the United States has a free trade agreement.

While some believe the EV-maker is due for a third split in 2024, that probably won’t happen unless the share price rises significantly from where it is now. Shareholders approved the split in August and the transaction was implemented later that month. Between March and August, Tesla’s share price rose, fell and recovered—finishing out August with a slight gain. Tesla hasn’t targeted a $100 share price yet, but that could change as the company matures.

No One Really Knows What Tesla Stock Is Worth

A company will also do a stock split to increase liquidity, making the share price more attractive for retail investors. When a share price is lower, it’s more appealing to everyday investors who are likely to trade more often. Tesla also expects that reducing the share price through a stock split will make its common stock more accessible to retail investors, which it sees as a positive development. Conversely, Tesla’s share price will be reduced by a third following its August 24 close. People prefer to buy and sell an even number of shares, and they like to pay within a particular range if possible,” Stovall said.

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The stock split will change the price and number of shares, but the market capitalization isn’t instantly adjusted. Instead, the goal is for the new value of the shares to eventually increase the total market capitalization. With a stock split, the board of directors hopes the stock price will go up since the shares are now more affordable for retail investors.

Think of stock splits as nothing more than window dressing that allows companies to make their shares more accessible for retail investors. It’s also a way of encouraging higher average trading volume, which CEOs like Elon Musk understand can keep Tesla at the heart of the conversation on online message boards and within investing communities. One of the most important things to recognize about forward and reverse stock splits is that they have no effect on the operating performance of a publicly traded company. Adjusting the share price and outstanding share count amounts to window dressing. Stock splits don’t impact a company’s market value, but evidence suggests that by making shares more affordable to retail investors, the move does often provide a short-term boost to share price. Tesla’s stock began trading on a split-adjusted basis after the market close on Wednesday, with each investor gaining roughly two additional shares under the latest stock split, which was approved by shareholders earlier this month.

MORE: Elon Musk says Tesla is raising price of ‘Full Self-Driving’ software to $15,000

The The ISS argued that pledging of company stock by directors poses a risk to outside shareholders. Tesla’s annual meeting also had votes on eight proposals submitted by shareholders. The preliminary tally indicates that seven of them were rejected, as recommended by management. However, the preliminary results indicate that Proposal Six on the agenda, to increase shareholders’ ability to nominate competing candidates for board seats, passed.

A stock split increases the number of shares outstanding, giving investors more shares in their account for every one share they previously owned. If the stock split were to occur at this price, it would result in an individual share price of $288.17, with three times as many shares in circulation. Investors also considered on a range of shareholder proposals that Tesla encouraged them to vote against.

For instance, if their ballpark estimate of the stock’s value is somewhere between $200 and $300 per share, they could require shares to trade at a significant discount to their estimate before considering buying. Indeed, given the uncertain nature of Tesla’s business, it wouldn’t be too drastic to require shares to trade as much as 50% below a fair value estimate before the stock should be bought. So, in our example, an investor may want to avoid buying Tesla stock until it trades somewhere in the range of $100 to $150, or a 50% discount to a fair value estimate range of $200 to $300. The common end-goal of holding share prices low through splits is to improve the stock’s liquidity and accessibility. This is a function of demand; if many investors are willing to buy, selling investors can liquidate their shares quickly. Below we’ll look at Tesla’s stock split history, share price considerations and other factors to assess the likelihood of a split this year.

Most often, a company foresees major growth on the horizon and it wants to keep shares at an accessible price for retail investors. The stock also becomes more accessible to employees who receive stock-based compensation, like they do at Tesla. Tesla implemented the split by paying a stock dividend of two shares for each share held after the close of trading. The stock split makes the shares less expensive, and more accessible for a wider base of retail investors. Tesla shareholders approved the new stock split at the annual shareholder meeting in Austin, Texas.

Thus, the risk-to-reward proposition doesn’t look favorable right now. Let’s take a big-picture perspective, though, as the stock is still https://www.1investing.in/ down year-to-date and over the past 12 months. These uncertain factors make it virtually impossible to know what Tesla stock is worth.

The company first announced the proposed split several months ago via a March 28 tweet. The Tesla stock split has garnered interest from retail investors and folks who have been watching the market cfp salary in india closely. In addition, the recent Inflation Reduction Act has placed more attention on the electric vehicle (EV) industry as experts attempt to determine how the allocation of funds will work.

But even after approving the 3-1 proposal, Tesla’s stock is still down more than 28% year to date. This is roughly in line with the broader market, and the Nasdaq Composite index, which Tesla is on, is down 20% year to date. On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article. Rivian Automotive will release its quarterly results on Aug. 6, after a substantial stock rally already took place.

That’s putting pressure on margins and profitability just as Tesla’s EV competition is on the rise. Second, Goldstein points out that the act would require a growing percentage of « critical materials » used to build EVs be extracted or processed domestically, or in those countries where the United States has a free trade agreement. Tesla’s 2021 impact report shows most of the company’s materials come from Argentina, China, and the Democratic Republic of Congo. However, trading became volatile in recent weeks as investors weighed whether or not Tesla would benefit from the bill’s passage. Tesla’s stock will also keep a Morningstar Rating of 3 stars following the split, but at a slight premium of 14% as of Aug. 23, which is still within a range that Goldstein views as fairly valued.