Tesla Inc. keeps on riding high, its share price rising 7.8% since the company announced a five-for-one stock split Tuesday.
Trading at little more than $1,481 in early trading Wednesday, the split adding a little more fuel for the share’s continued rocket-like upward trajectory since mid-March. The stock has risen more than 200% in 2020.
The company issued a release yesterday outlining the reason for the split, saying the “declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors.”
According to the company, each stockholder of record on Aug. 21 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on Aug. 28. Trading will begin on a stock split-adjusted basis on Aug. 31.
While it may make the stock more affordable for employees, it’s investors that are most likely to gain the most from the move. However, it’s likely to attract new investors to the EV maker as well — a definite benefit as the company continues to grow.
The company is on a well-reported run of positives, including the selection of Texas as the site of its next Gigafactory. Just prior to that, the good news was that Tesla is set to be added to the S&P 500, after it turned a profit for a fourth-consecutive quarter — the last hurdle to clear before becoming eligible to be added to the crème de la crème of stocks on the exchange.
The move is a big deal to investors as companies that have been added to the index typically see another bump upward in their stock price. Tesla’s Q2 profit was not guaranteed, although not entirely stunning despite most other automakers reporting losses during the period, due to the COVID-19 pandemic.
Tesla reported $104 million, or 50 cents per share, in net income on $6.03 billion in revenue. For Q2, its adjusted EBITDA came in at $1.2 billion, resulting in a margin of 20%, which likely only to make the investment community pretty happy. The company also squirreled away $535 million, raising its total cash and cash equivalents to $8.6 billion.
They should be pleased as the profits came despite lower production levels both on a comparable period basis, which was down slightly, and quarter over quarter, which fell 20 percent. Through the first six months, production is down 5%, the company reported.
The share split will not make Tesla any less expensive in terms of actual earnings it delivers to investors, according to Reuters. The stock currently trades at 112 times expected earnings over the next 12 months, according to Refinitiv. By comparison, GM is valued at eight times expected earnings, and Ford at 45 times expected earnings, the news agency noted.