31 August 2020 18:33
New York (CNN Business) Tesla shares are much, much cheaper Monday after the stock's 5-1 split. Even though Tesla's stock traded roughly 10% higher at $488 a share Monday, that's still around $1,800 cheaper than where it was trading on Friday. The company announced the stock split earlier this month, making shares more affordable for average investors. Tesla TSLA The split will not change the value of investors' total holdings of the company. Tesla continues to be a big target of short sellers--investors who borrow the stock and sell it with the hopes of eventually buying it back at a lower price.
Elon Musk, Tesla's CEO, likes to point out (correctly, so far) that analysts have been consistently wrong and that Wall Street keeps raising its earnings forecasts and price targets on the stock. Shares of Tesla Inc. shot up into split-adjusted record territory Monday, as the lower price did not change the trajectory of the parabolic uptrend. The stock TSLA, +10.37% surged 7.7% in midday trading, to trade above the previous record close of $447.75 — $2,238.75 pre-split — on Aug. 27. Earlier in the session, the stock was up as much as 12.3% at its intraday high of $497.00, which topped the previous all-time intraday high of $463.70 — $2,318.50 pre-split — reached on Friday. After closing at $2,213.40 on Friday, Tesla's 5-for-1 stock split went into effect at Monday's open.
Read more about recent bullish analyst calls referencing the battery day. Meanwhile, there are signs suggesting some investors are starting to worry that the stock split highlights how the stock rally, which has sent it rocketing more than fivefold this year, may have gone a bit too far. Stock and options trading platform iVest+ said recent data indicates that the number of investors hedging the downside, or even betting on a decline, increased "significantly" ahead of the stock split taking effect. "Our data show that while investors were heavily bullish on [Tesla's stock] all quarter, as the stock jumped several hundred points leading up to the ex-dividend date, we started to see a change," said iVest+ Chief Executive Rance Masheck. "A significant percentage of traders either shifted to looking to make money on the downside of the stock moving forward or continued to place bullish bets, but using more complicated strategies that limit downside even more than just buying your typical calls and puts." From July 1 through Aug. 10, 79.2% of options trades in Tesla's stock were bullish, iVest+ said, with 72.1% of those trades being the simplest call purchases.
"This is a significant shift in trader mentality about the future of the stock following the stock split," iVest+ said. Tesla announced its plan to split its stock after the Aug. 11 close. Shares of Tesla (NASDAQ:TSLA) finally began trading on a split-adjusted basis Monday morning, completing a stock split that was announced on Aug. 11. The lower price represents a forward stock split in which shares split 5-for-1. Tesla stock opened the day trading at about $445--one-fifth of what the stock was trading at before the split. If the electric-car maker's stock split has grabbed your attention and you're now taking a closer look at the growth stock, here's a quick overview of important factors investors should keep in mind. A stock split doesn't make Tesla stock a better buy First and foremost, investors should note that while Tesla shares are more affordable after the split, the split does not make the stock a more attractive investment than it was at its much higher pre-split price of $2,225. Simply because both price and ownership in the company on a per-share basis were divided by five. Put another way, each Tesla share is now assigned only one-fifth of the ownership in the company that was allotted previously. On the flip side, of course, a stock split doesn't make Tesla stock any worse of an investment either. A stock split is simply a nonfactor when it comes to making investment decisions and should have no impact on an investment thesis. Several key catalysts for Tesla stock Nevertheless, some investors may be more interested in Tesla stock now simply because shares have become more affordable. Some retail investors could have been in a position in which it was more difficult to spend $2,225 on a single share. Or perhaps there are other investors who have coincidently become more interested in Tesla stock recently. For those investors, let's take a quick look at the automaker and the catalysts that could help the stock over the long haul. Debuting in March, the Model Y is Tesla's second-most affordable vehicle yet. With a starting price of about $50,000, the new vehicle gives the automaker a smaller SUV that is much more affordable than its larger Model X SUV. Model X pricing comparatively starts at $80,000. The automaker has big expectations for the Model Y, with management saying that it believes deliveries could eventually surpass those of the Model 3, which is Tesla's best-selling car by far. Specifically, Tesla CEO Elon Musk has said he believes annual Model Y deliveries could eventually grow to 1.25 million. With total Tesla vehicle deliveries estimated to come in at about 500,000 this year, the Model Y has the potential to be a huge catalyst for Tesla. While revenue from the segment only accounts for about 6% of total revenue today, Musk believes Tesla Energy will eventually rival its automotive business. Finally, Tesla hopes its vehicle software will eventually bring in far more revenue for the company. First, it will continue raising the price for its driver-assist technology as it improves (the company believes the software will eventually get to the point where Tesla can release an over-the-air update that makes its vehicles self-driving, helping it command a much higher price tag). Second, Tesla plans to eventually launch a ride-sharing network that will operate with self-driving Tesla vehicles. Despite these exciting potential catalysts for Tesla stock, investors should keep in mind the automaker's pricey valuation. This means that investors have already priced in a wildly optimistic growth story for the company over the next decade. It's always possible, of course, that Tesla executes so well that even the rosy outlook priced into the stock today proves to be an underestimate of the company's potential. The incredible run for Tesla shares continues. The stock rose again Monday after beginning to trade at a lower, split-adjusted price. The stock split, however, isn't the only thing affecting shares. Tesla (ticker: TSLA) stock was up almost 9% to $482.71 in morning trading, leaping past even some of the more bullish projections for where the stock would trade soon after splitting. The stock is now up 72% since management announced a 5-for-1 stock split on Aug. 11. Argus Research analyst Bill Selesky raised his price target to $566 a share, the highest on Wall Street. The price-target increase deserves some credit for Monday's gain as well. The average target price for Tesla stock is up from roughly $50 to $260 a share over the past year. The stock has continued to gain since then, but analysts keep raising their target prices, too.