Why Tesla Stock Is Suddenly Dirt Cheap
Tesla stock is normally untouchable for the average person. However, share prices have suddenly tanked making it oddly affordable.
This article is more than 2 years old
Tesla’s stock price is set to drop when Wall Street sounds the opening bell today. But this time it’s not due to Elon Musk tweeting about the demand for electric vehicles, full self-driving features, SpaceX, silly memes, or his legal battle with Twitter. It’s because the electric car company completed its 3-for-1 stock split which means one share now costs a third of what it did a day ago. As a result, the EV company closed around $891 on Wednesday, CNN Business reports. That means the stock was trading a little under $300 early Thursday.
Long before the economy became plagued by uncertainty, a company’s stock split was hailed as an opportunity for further investment. When Tesla revealed the same stock intention in 2020, its shares immediately went up and climbed 66% over the following 12 months. But as concerns about the Federal Reserve and inflation continue to haunt investors, those days seem to be over. When the electric vehicle manufacturer approved their 3-to-1 split in June, the stock barely moved.
Addressing the stock split in its annual proxy statement at the time, Tesla said the company’s success depends on attracting and retaining excellent talent. And that highly competitive compensation packages, offering every employee an option to receive equity, helped the electric car maker to do that. “We believe the stock split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity.” The EV-maker also noted that board member Larry Ellison does not plan to stand for re-election, CNBC previously reported.
While cheaper shares may be cause for celebration by some, it’s worth noting that Tesla’s valuation remains unchanged. After the stock split, the Elon Musk-led company is still worth more than $930 billion. And shares continue to trade at a lofty multiple of more than 70 times this year’s earnings forecasts. That’s a huge premium to the valuations of traditional auto companies like Ford, General Motors, Volkswagen, and Toyota. The only thing that the stock split changed is that existing investors now own three times as many shares, at one-third of the price they ended at earlier this week.
However, Tesla’s stock is still down about 15% this year, as investors remain concerned about competition from traditional automakers in the electric vehicle market. Elon Musk’s growing catalog of distractions has also been worrisome for interested parties. While running the EV company, the 51-year-old is the founder and chief executive of SpaceX which has a bold mission of colonizing Mars. SpaceX also owns and operates the Starlink satellite internet network.
The Tesla boss is the founder and CEO of tunnel maker the Boring Co and he also runs Neuralink – which seeks to tie human brains to computers. With so much going on, experts say the billionaire may have overextended himself with his plans to buy Twitter. So perhaps, that deal falling through the cracks could have some long-term benefits. For all his controversial moves, it can be argued that no CEO has taken on more responsibility than Elon Musk.
