Tesla (NASDAQ: TSLA) is splitting its stock today.
The stock closed yesterday at $891. And shares were trading this morning around $295.
Inside TSLA Stock Split: How It Work
Tesla just completed a 3-for-1 stock split on August 25.
That means shareholders receive 3 shares of TSLA stock for every 1 share they already owned. If you previously owned 10 shares of TSLA – you now have 30 shares.
The market makers on Wall Street respond to this – by adjusting the stock price to reflect the increase in the number of shares.
Just to be clear: TSLA shareholders didn’t triple their money overnight.
- 10 shares pre-split X $891 per share = $8,910 value
- 30 shares post-split X $295 per share = $8,850 value
The difference in value reflects a small decline in Tesla’s stock price this morning.
Is today’s stock split part of Elon Musk’s Secret Master Plan?
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It’s been two years since Tesla’s last stock split.
Tesla completed a 5-for-1 stock split in August 2020. TSLA shares soared 60% between the time of the announcement and the completion of the stock split.
Companies split their stock in order to lower the stock price. This can help attract more investors who were unable – or unwilling – to buy a stock trading at $800 or $900 per share.
Inexperienced investors often relate share price to the “value” of a company. Meaning, they might consider Tesla at $900 to be expensive. And they’d think Ford (NYSE: F) at $15 is cheap.
However, this is really just psychological. The share price itself is meaningless when it comes to the valuation of a company.
25% Average Gains AFTER A Stock Split
Stock splits have historically been an indicator of strong stock price performance.
Since 1980, stock have staged a 25% annual gain after completing a stock split. That compares with a 9% average stock market gain, according to Bank of America.
You might conclude that the stock split is the reason that these stocks outperform.
However, it’s also possible that this is simply all about momentum.
For example, stocks that split have typically already seen market outperformance. The reason they split their stock price is because it’s already risen considerably. And the share price is now at a level that is out of reach for regular investors.
So, the outperformance after the stock split is simply an extension of the positive share price momentum.
What’s next for TSLA stock after the stock split?
The company’s future will rest on Elon Musk’s Secret Master Plan 3.0.
The plan will reveal HOW Tesla will produce 20 million EVs per year. And how the company plans to expand battery production by 3,000%.
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Yours in Wealth,