The last several months for electric car maker Tesla (TSLA) have been a long, strange ride. Price changes, stock action, and the ongoing sideshow that is Twitter (TWTR) have made for a stock that has split opinions throughout the ecosystem. Tesla’s latest move, an upcoming stock split, should draw some new interest. Tesla’s newest stock split is set to arrive tomorrow, August 25. The planned stock split is a three-for-one split.
Don't Miss Our Christmas Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Thus, anyone who owns a hundred shares of Tesla will, tomorrow, own 300. Once that kicks in, Tesla shares will start trading at the new price. The new price will be reduced by about two-thirds, at least until it starts trading in earnest.
The last 12 months for Tesla shares have been as volatile as you could ask for. Nevertheless, shares are higher during the time period, as last year at this time, a share of Tesla cost just over $700.
By early November, that climbed to just over $1,200. A series of drops and rallies followed, up until the low for the year, around $620. It’s recovered since and is now challenging—and likely to beat—the $900 per share mark today.
Tesla can be a very attractive stock, but it’s not without its problems. The last time I talked Tesla, I shifted to neutral thanks to a potential stock split. Now that that stock split is about to be a reality, I’m going to shift once again to bullish. The move is likely to succeed at its intended purpose, at least in the short term, and getting in now may be a smart plan.
Investor Sentiment isn’t Good for TSLA Stock
Right now, investor sentiment is not working well in Tesla’s favor. Tesla currently has a 5 out of 10 Smart Score on TipRanks, which is right around the mid-level of Neutral. That means the stock is very slightly more likely to lag the broader market than it is to outperform it.
Insider trading, however, is very much cast against Tesla stock. Insider trading at Tesla is extremely sell-weighted, with virtually no buying activity seen in the last 12 months altogether. However, most of the buying activity at Tesla took place in the last three months.
In the last three months, there have been two buy transactions but 14 sell transactions. The last 12 months are much more heavily sell-weighted. There were three buy transactions but 95 sell transactions.
Much of what’s weighing Tesla down is CEO Elon Musk, who sold stock in six different packages 16 days ago. Musk’s selling activity is largely related to the upcoming Twitter deal. If the court cases don’t go his way, he may have no choice but to buy Twitter regardless of how many bots it has in the system.
Why Do Companies Split Their Stock?
About three years ago, NASDAQ released a study that shows that stocks that split tend to rise immediately after that split takes place. The study found that just announcing a split gooses a stock an average of 2.5%, while the stock itself tends to outperform by about 5% after a full year.
Second, the idea works on a functional level. Not only do people like the thought of getting something for nothing—which, essentially, they do in a stock split—but also, it opens up the possibility of new investment.
Tesla’s share price may have driven off otherwise-interested investors. It’s hard to justify dropping $1,000 on anything, especially at a time when your job may be at risk, or you’ve got a mortgage payment to make.
An economic recession—like the one we’re arguably in now—is just such a time. So for Tesla to basically announce a 66% off sale is likely to draw in interested investors who may now have the means to buy in.
However, as some point out, there’s a chance this potential rally in the making may fizzle. After all, there’s not much reason to run a stock split to draw new investors, as many brokerages now allow buyers to buy fractional shares.
In addition, there’s the issue of growing competition in Tesla’s primary market of electric cars. With several Chinese firms stepping in, as well as the legacy automakers like Ford (F) and General Motors (GM), Tesla has more businesses pushing to take a piece of its market share.
It was one thing when Tesla was the biggest thing in electric cars, even if that was because it was the only thing. Now, electric cars are more readily available.
With Tesla actively hampering its own market with all the price hikes, that’s not going to help either. Tesla’s recent price hike on Full Self-Driving software, taking it from $12,000 to $15,000, won’t endear it to potential customers.
However, there’s also the matter of Tesla’s side business in electric power. Its batteries have quietly shown up, every so often, at major utilities and even in individual homes. It’s a way for customers to bridge the gap between outages in the broader grid. Tesla has already planned to launch an electricity retail arm in Texas.
Given the sheer number of blackouts and brownouts seen lately, along with the rise of work-from-home, that development is certainly welcome.
Is Tesla Stock a Buy?
Turning to Wall Street, Tesla has a Moderate Buy consensus rating. That’s based on 18 Buys, five Holds, and six Sells assigned in the past three months. The average Tesla price target of $921.59 implies 3.62% upside potential. Analyst price targets range from a low of $250 per share to a high of $1,580 per share.
Conclusion: Short-Term Gains, Long-Term Caution for TSLA Stock
Tesla is in a good position for gains right now, and that’s why I’m bullish. Those who buy ahead of tomorrow’s split will likely see the most out of this development. However, those who do buy in will need to watch it closely for signs of weakness. For the long term, Tesla still has several potential problems to address, but it also has some exciting positives. Given the number of possibilities, it may be worth getting in right now.
That’s why I’m shifting to bullish, at least for now. There are quite a few ways to win with Tesla right now, though these may not be around for long.
