Tesla (NASDAQ: TSLA) is one of the most followed companies in the stock market. It is rare for investors net to have an opinion about CEO Elon Musk and his company, whether it is very positive or outrageously negative. In just over a decade, however, Tesla has gone from an amazing, cocky startup to an industry leader.
Tesla has a habit of often breaking new milestones, typically in dramatic ways. Still, it came as much of a surprise that Tesla chose to share its stock for the first time in its history as a publicly traded company. If you now see Tesla as a potential purchase, you are probably asking yourself an important question: Should you buy the stock before the stock splits, or wait until you can invest in lower stock prices? Tesla has never done a stock split before, so history cannot lead us. However, the answer lies more in short-term psychology than fundamental long-term business perspectives.
Image Source: Tesla.
Does it make sense to buy before there is a split or wait?
Recently Call (NASDAQ: AAPL) made a similar decision to do a stock split. Unlike Tesla, Apple had made splits earlier, but it was six years ago that it finally made such a move. Looking at the history of the split split, Apple stock seems to follow a pattern:
- In the time between the split announcement and when it went into effect, the stock tended to do well.
- A few days after the split, there was often another major stock price bull.
- Following the immediate aftermath of the split, the stock tended to decline briefly before continuing with any trend it had seen prior to the announcement of the stock split.
We definitely saw the first part of that dyke card played out for Tesla. The first day after the electric car manufacturer announced its split, the share rose 13%. Investors will have a few more weeks to trade the shares on a pre-split basis before August 31, when the Nasdaq stock market begins to list prices that reflect the issuance of new shares in connection with the split.
By that logic, you have already missed a significant portion of the split-related impetus to Tesla by not having it before the announcement. However, many dealers will still try to squeeze in a few extra dollars in profit by timing their entry into Tesla. They may not even have a necessary interest in keeping the supply for the long term, instead they want to get out before the positive sentiment disappears from the split.
What to be able to You do?
Whether you should buy Tesla now or later depends in part on how much money you need to invest and how your broker will invest you. If you do not have the $ 1,500 to $ 1,600 to buy a single full share of Tesla at recent prices, then you need to find out if your broker will buy you fractional lands instead. If not, you’re in luck – and you’ll have to wait until the 5 for 1 split comes into effect. At that point, you could just invest $ 300 to buy one share of the newly split Tesla share.
If you can buy fractional shares, you should not have to spend as much as you invest. If you now pay $ 300 to $ 320 for one-fifth of a pre-split share, you will end up with a full share after the split takes effect (assuming prices remain stable; there is no guarantee that will happen with any stock, and Tesla in particular has had a wild year). Alternatively, you can expect to pay roughly $ 300 to $ 320 for a post-split portion while you wait. The share price is sure to change from time to time, but there is no definitive way to expect whether it will go sharper higher, lower, or just make gentle movements in both directions.
The most important consideration
For long-term investors, none of these short-term moves are important. Consider what happened on Tesla’s first day of trading after its IPO. Participants in the initial public offering were allowed to buy the stock for $ 17 per share, but on the open market the share price jumped 40% to close at almost $ 24 per share. That was a huge difference at the time.
Now, however, buyers from back to back do not see much difference. It is inconsistent if someone has a profit on their Tesla stock of $ 1,531 per share or $ 1,538 per share. The important thing is that all shareholders have enjoyed an enormous profit.
Likewise, those who now want to invest in Tesla should now concentrate on the potential term of the company. Relationships of new cars are likely to add to Tesla’s popularity and expand the addressable market. Technological advances will find use in additional businesses, driving new profit centers. Expanding production should stimulate faster growth. The potential in each of these areas is what drives Tesla’s value.
Make a smart investment decision
If you think Tesla has what it takes to grow, then there is no good reason to wait to buy shares. But you also need to look to keep track of your position in your favorite stock over time. Whether you shop today or wait a few weeks, five or 10 years from now will not make much difference.
