Tesla shares in the limelight as 3-1 stock split kicks in

Tesla shares in the limelight as 3-1 stock split kicks in
© Reuters. FILE PHOTO: A Tesla Model X car (front) and Model S (2nd L) are photographed at a Tesla electric car dealership in Sydney, Australia, May 31, 2017. REUTERS/Jason Reed/File Photo

By Akash Sriram

(Reuters) – Tesla (NASDAQ:TSLA) Inc’s shares take center stage on Thursday after the world’s most valuable automaker split its stock for the second time in as many years to woo more retail investors.

Shares of the electric-car maker rose 1.5% to $301.5 in premarket trading. The stock closed at $891.29 on Wednesday before the three-for-one split took effect.

“Tesla knows it needs to retain its clout with the retail crowd, especially after this past year-plus of retail investors flexing their muscles,” said Callie Cox, analyst at trading and investment platform eToro.

Tesla’s shares have fallen about 11% since the company announced in March plans to increase its number of shares and are trading nearly flat so far this month.

“In typical buy-the-rumor, sell-the-news style, investors tend to drastically scale back purchases of splitting stocks in the weeks ensuing the effective split date, causing price momentum to slow,” analysts at Vanda (NASDAQ:VNDA) Research said in a note.

Tesla’s ticker was trending on social media stocktwits.com, indicating increased chatter among individual investors.

High-growth companies, including Amazon.com (NASDAQ:AMZN) and Google-parent Alphabet (NASDAQ:GOOGL), have announced share splits this year, highlighting the increasing need to diversify their investor base.

Tesla had split its stock on a five-for-one basis in August 2020.

A stock split does not affect the fundamentals of a company, but makes it easier for individual investors looking to do small trades. However, the benefits of stock splits are becoming less clear as brokerages let customers buy parts of a company’s share.

Tesla shares, which debuted at $17 in 2010, rose to more than $1,200 after the stock split in 2020, taking the company’s market capitalization above $1 trillion late last year.

However, the shares have fallen about 16% this year as worries over aggressive U.S. interest rate increases and geopolitical uncertainty triggered a sell-off in high-growth stocks.

Tesla’s latest three-for-one split means that stock holders will get two additional shares for each share that they owned as of Aug. 17.

Source: Reuters