What happened
Shares of Tesla (NASDAQ: TSLA) much on Wednesday, with more than 10% up as of 12:20 p.m. EDT.
Growth growth follows news that the company’s board has approved a 5-for-1 split of Tesla’s share. Some investors may be betting that there will be a greater demand for the stock at a lower price point.
But could a spike in demand for the electric car maker’s supplies be short-lived?
A Tesla Model 3. Image Source: Tesla.
So what
Tesla said on Tuesday afternoon that it will split its stock later this month. Following the split, shareholders will have five shares with a combined value equal to the value of what one share trades at the time of the split.
It is important to note that the stock split will do nothing to boost the underlying intrinsic value of the shares that investors own. In theory, therefore, it makes no sense for the stock to increase on Wednesday. However, investors seem to be speculating that there will be a greater demand for the stock due to its split.
Well what
While it is possible that Tesla stock market demand will be higher in the long run due to a split, underlying foundations will ultimately matter in the long run when determining a stock’s value. Investors should therefore refrain from making investment decisions based simply on a stock split.
Tesla’s share will launch on August 31 on a split-adjusted basis.
