Tesla (TSLA) has skyrocketed 50% since announcing the stock split on August 11th. It is now trading at almost $ 2,100 per share.
Once the split takes effect on August 31, current Tesla investors will receive five shares for each one they own. That will cut the price by a fifth, to nearly $ 420 per share. The market value of Tesla, which now hangs around $ 390 billion, will remain the same.
Tesla is expected to generate nearly $ 30 billion in annual revenue this year. That’s nothing to sneeze at. Mar Fiat Chrysler (FCAU) is rumored to report $ 100 billion in sales by 2020. GM (GM) en Ford (F) are each forecast to post annual revenue of more than $ 110 billion.
However, Tesla’s market value is now more than four times the combined market cap of Detroit’s Big 3.
It seems silly for investors to plow into the stock just because it is going to split.
A majority of Wall Street analysts bet against Tesla. Of the 33 who officially follow the stock, only eight have a purchase amount on Tesla, while 15 have rated it a rating and 10 have a recommendation.
Only three of Tesla’s analysts currently have a price target above $ 2,000. The consensus target is just under $ 1,300 – almost 40% below its current price.
Tesla continues to be a big target of short sellers, investors who borrow and sell the stock with the hope of eventually buying it back at a lower price.
Of course, Tesla fans can correctly point out that analysts have been consistently wrong and that Wall Street should ultimately raise its earnings forecasts and price targets on the stock market.
Tesla could also get a further boost if it is finally added to the blue-chip S&P 500 index – a move that could happen soon now that the company has posted a constant run of profitable quarters.
Mutual funds and ETFs that mimic the S&P 500 will be forced to accidentally add Tesla shares if the company is added to the index.
If Tesla were in the S&P 500, it would be the ninth largest company in the index. The market value of Tesla has passed Walmart’s (WMT) on Friday.
Only eight companies – Call (AAPL), Amazon (AMZN), Microsoft (MSFT), Google Owner Alphabet (GOOGL), Facebook (FB), Warren Buffett’s Berkshire Hathaway (BRKB), Fisa (V) en Johnson and Johnson (JNJ) – are worth more than Tesla.
The fact that so many short sellers stepped up in Tesla may have also helped fuel the rally.
As short sellers lose more money as the price goes up, investors betting against Tesla are often forced to buy back the stock to cover their position and prevent further losses. This causes a phenomenon known as a short squeeze that can push the stock even higher.
But even Tesla bulls Ross Gerber, co-founder and CEO of wealth management firm Gerber Kawasaki and an owner of Tesla shares,
tweeted Thursday that he thinks the scholarship “is potentially offered by people who think the split will make them money. Be careful.”
“It’s OK to take something off the table. I have,” he admitted, adding that he sold some shares when they hit $ 2,000.
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