September 1, 2020

Stock Splits: Apple and Tesla

Stock Splits: Apple and Tesla

After a gigantic stock rally, both Apple and Tesla stocks surged yesterday after their stock splits. Investors believe that Tesla stock still has more upside despite its gain of over 1,000 percent in 52 weeks. Retail investors trust that when Tesla’s stock joins the S&P 500 index, it will become part of more significant portfolios that will increase Tesla’s stock price. As for Apple, retail investors believe the sky is the limit.  

Tesla’s Stock Price Beyond Mom-and-Pop’s Reach 

Stock splits are chiefly targeted at retail clients who do not have much buying power to invest in high price stocks. Stock splits do not modify the company’s intrinsic value or alter its economics.  

Tesla’s enormous gains pushed the stock price beyond the ‘mom-and-pop’ stock price level. When the stock splits are complete, it is expected that the stock price will rise again as it will attract fresh capital. For Tesla, this occurred like a textbook trade.  

Tesla’s Stock Split and Stock Price 

Tesla announced a 5-for-1 stock split back in August, and its stock price closed just above $2,000 per share on Friday. Yesterday, that stock split took place. The stock opened at $444 before reaching a high of $500. Tesla shares closed with a gain of 12.57%. The company’s shares are up 24% in the past five days and have soared 74% in the last 30 days.  

Facts About Tesla 

The electric vehicle maker, Tesla, aims to deliver nearly half a million cars in 2020, and its current valuation is about $464 billion. Companies like General Motors, which have much longer trading histories and a reputation for car manufacturing, delivered 2.9 million cars in the U.S. last year.  

More shocking is General Motor’s market valuation, which is just over $42.4 billion, significantly lower than that of Tesla.  

Tesla on Track to Join S&P500  

Tesla, which is still part of the Russell 3000 index, outperformed the Russell automobiles daily gain of 10% yesterday. The trading volume was nearly 65% above the 20-day average, indicating that new money came in. 

Tesla is on track to join the S&P 500 index, becoming part of a major stock index. After joining the S&P 500, the stock will sit in most of the hedge fund portfolios, whether they like it or not. This is because when they buy the S&P 500 index, a lot of them just track the S&P 500, they will automatically subscribe to Tesla’s shares.   

What About Apple?  

The iPhone maker traded above $500 per share on Friday. It also announced a stock split of 4-for-1 after its knockout third-quarter earnings report. This is Apple’s fifth stock split according to its earnings reports.  

Apple’s stock split became effective from yesterday and opened at $127 before reaching a high of $131 as fresh money poured in. Apple’s shares closed 3.39% higher yesterday.  

The trading volume for Apple shares was 17% percent higher than the 20-day average. The stock is up 2.5% in the last five days, and it has advanced 21% in the last 30 days. Apple, which also pays a dividend, has a dividend yield of 0.6% on a trailing 12-month basis.  

Apple is the only publicly-traded company that has a market capitalization of over $2 trillion. For retail investors, this is almost a perfect scenario because the stock is not only growing in value, but it is also paying a decent dividend.