$TSLA Stock Split After Two Days

Bloomberg Headline: Tesla Split Will Struggle to Feed $280 Billion Rally


:pushpin: Shares erase gains and turn negative as split takes effect

:pushpin: Stock has fallen 12% since plan was announced in late March

By Esha Dey August 25, 2022, 8:13 AM UTCUpdated onAugust 25, 2022, 1:42 PM UTC


After a $280 billion rally since late May, Tesla Inc. is using a trusted method for fueling further gains. It may not pan out like that.

The electric vehicle maker’s second stock split in as many years took effect when US markets opened on Thursday, a move aimed at bolstering an already strong retail investor base. The previous one in 2020 was among a number of factors that drove the stock up more than eightfold that year.

The latest split comes close on the heels of similar moves by Amazon.com Inc. and Alphabet Inc., whose subsequent stock performances have suggested this once dependable tactic to boost valuation is losing its potency amid the ravages of a bear market. Amazon shares fell more than 10% from when it announced the split to the day it became effective, while Alphabet lost 21% between those events.

$TSLA daily chart


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In addition to a tentative investor mood, the stock’s eye-watering valuation may also make gains harder to come by. Tesla trades at about 58 times forward earnings estimates compared with 18 times for the S&P 500 Index. And the average analyst price target implies a decline of about 4% over the next 12 months, even as the benchmark index is expected to rise more than 15%.

“There is a lot of hope, speculation, hero worship in the current valuation,” said Catherine Faddis, chief investment officer of Grace Capital. In order to buy the stock right now, an investor needs to believe that in 10 years Tesla will have revenue of $800 billion, Faddis said, almost 10 times estimates for this year.

Then there is the company’s litany of challenges – production troubles in China, the persisting supply-chain shortages across the automotive industry and high raw material costs, as well as Musk’s litigation with Twitter Inc. – that can dull the shine of any potential exuberance driven by the split.