came the three-for-one stock split. And the stock has been up since the company declared the split in early August. Now the question is what should investors expect Tesla stock to do after the split?
On Thursday morning,
(ticker: TSLA) the shares will trade at approximately one-third of their Wednesday closing price. Tesla is decreeing the split by paying a dividend of two shares for each share held after the close of trading.
Investors tend to like stock splits: they believe they signal something positive about a company’s future. After all, no one shares a stock that they expect to go down.
Stock splits also make stocks less expensive, potentially putting them within reach of a broader base of retail investors. It also makes trading options in a stock cheaper.
The first time Tesla split its shares, in August 2020, the shares gained an incredible 81% between the split announcement and the day the shares were split.
Tesla shares are up about 5% since the 2022 split declaration.
fell by about 0.2% in the same period. Stocks outperformed but nowhere near their 2020 split level.
Part of the reason is that investors have long been waiting for this latest split: it has been discussed since March and became official in August. The first division was a surprise, relatively speaking.
Now, with the real split in the rearview mirror, investors need to focus on what’s next. The last time the shares split in August 2020, the shares were down the next day and were down about 14% the following month.
Three months after the split, however, the stock has recovered all of that drop and more, rising about 14% compared to the stock price on the date of the split. Six months later, the shares are up about 36%. Between six and nine months, the stock fell, but still rose about 25% compared to the stock price on the day of the split. And a year later, Tesla shares are up about 48% compared to the price on the day of the split.
The stock did well, outperforming the S&P 500 at the three, six, nine and 12 month marks. Stocks are up about 18 percentage points higher than the S&P a year after the August 2020 split.
Whether that kind of superior performance is repeated this time is anyone’s guess. There is some reason for optimism. Bank of America found that since 1980, stocks that split have outperformed the market by about 16 percentage points a year after the split.
A stock split, of course, may not be why stocks beat the market after the actual split. Correlation does not always equal causation.
Stocks that split tend to rally already – that’s why they need to split – and positive price momentum is also a powerful predictor of future stock performance.
Of course, Tesla’s stock will be affected by the health of the general economy, along with its own EV deliveries and profits.
Write to Al Root at email@example.com