August 31, 2020 By Fruit Mogul
If you’ve been following the stock price lately, you may be forgiven if you think Tesla has had a recent christening of the news. In fact, Tesla stock closed at 00 1500.84 on the day my last article was published. Today, as I write this, before the split, the share price is currently at 21,213.40 per share.
While I think he can argue, I think the biggest news affecting the share price between those two dates is the upcoming stock split which will be completed on Monday, August 31st, and that’s what I want to dive in here. . Parts of the stock shouldn’t matter, but I think the market is getting this one right, as Tesla presents a unique situation. So, let’s dive!
Why stock splits shouldn’t matter
Before we understand the difference between Tesla and regular stock splits, let’s make sure we’re all on the same page about what a stock split does.
The stock split is exactly what it says – the company takes the shares and divides them into a predetermined number of shares, all at the price of 1 / X of the value of the shares (divided by the number of shares with X).
Shares can also do the opposite of splitting, where the company will combine multiple shares together, the price of the new shares will be the same as the combined share price. Groupen is an example of a company that recently did this, reverse splitting 1-for-20, i.e. if you owned one share – like I would, thank you for opening a Robinhood account – you (or me). Now the shares are 1/20th.
When these splits happen, nothing else really changes. The value of the company remains the same. Now you only have more shares, or in the case of reverse splitting, fewer shares, which are attached for the same amount of cash value. Earnings per share vary depending on the new amount, and can be confusing when you look at old articles about profits, which do not update automatically, but do not change any fundamental changes about the stock split company. For example, as before the split, Tesla would still have a 500 500 million warranty repair reserve that it could immediately recognize as revenue.
The point is, stock splits don’t really change anything.
I think it’s also fair to point out that stock splits are often done by companies that are gaining value, while reverse splits happen with troubled companies. Reverse stock splits can be used to try to get their shares listed on exchanges that have minimum share price rules, as it is important for equity investors to really buy. The insolent person may even say that he tricks investors into thinking the company has gained momentum. I was suddenly excited to find a stock tracker program that I used to suddenly have a share in a group, and I was amazed at what happened. Maybe I should take care of it.
But standard stock splits have largely come in favor. The main reason for them is to make stocks that small investors find more affordable. Today, with a number of brokerages targeting small investors like Robinhood – or offering a buy capacity of as low as 1 / 1,000,000 per share – many places have argued that stock splits would not be more interesting than this, and they are increasing the share price straightforward sphere for investors. Were to see.
The market’s response to Tesla’s announcement has blown a little hole in that argument, and I think there’s a really good reason for it.
What are the benefits?
While stock splits don’t affect the overall company’s valuation, earnings, losses or anything else, there’s one thing they do affect – and that is the ability to vote for your stock. Many companies offering fractional shares do not allow fractional shareholders to vote for their shares. Robinhood is one of the few I can find that doesn’t allow you to vote, and it contributes to the votes.
In the case of most companies, the ability to vote for your stock is probably not a big deal. Institutional investors and “retail” investors often view Tesla differently. Many of us who have started diving into Tesla expect some positive and negative information. Last October, I wrote an article about why Tesla originally invested a small, 8 stocks – I thought it was a risky stock but one that has the potential to rise in astronomy in the future. On that date in October, I identified 11 issues where I saw Tesla work significantly better than most analyzes showed, and as I continued my own analysis, I found no evidence that I did not believe the company would run and grow fast.
While it seems that Wall Street analysts are beginning to understand the bullish theory on Tesla – however, I think many of them are improving their price targets due to herding (which is appropriate for some time in his own future article) – you still Even surprisingly stupid arguments can be found regularly pushed and pushed. Yet many analysts are pushing the argument that Tesla is just a car company. Articles are written claiming that the demands do not yet exist.
If you dig for your own evidence, those arguments differ from actual research. Most of the articles I write I watch Bear Thesis to see if it is valid. The companies I invest in, the bears always have points. Tesla is a company that I have never held that I have not found a single bear argument with which I agree.
This has everything to do with stock. Shareholders can force companies to vote on resolutions that could force companies to change the direction of the company or how it operates. Carl Eiken and Dan Loeb are two investors who are known for it.
It is not unrealistic to think that an active Tesla shareholder could force a vote on something that could drastically change the direction of the company. “My biggest problem right now is that our cars are unaffordable,” Elon Musk said in a past earnings call. Imagine if an activist investor forced Tesla to keep a proxy vote on whether the company should lower the price of its vehicles or make more money. It’s not hard to imagine a world in which organizations that have stock but don’t understand it decide to vote for a profit more than the price.
While I think Tesla could easily have survived such a vote – after all, Elon Musk owns about 20% of the remaining Tesla shares – the more retail investors have access to voting shares, the more likely it is that the company will be insulated by a change of wall. Street types may think the company will do better.
Conclusion
When I heard that Tesla would share its shares, I was eccentric, for exactly this reason. About Tesla and how far Wall Street investors have gone so far, I think there will be a potential reduction in the influence of institutional investors who may be influenced by a worker who tried to get a proxy vote to change the company is a good thing.
While there are no hard numbers, it is estimated that about 75% of Tesla is owned by institutional investors and Tesla executives. If retail investors lose 25%, as many investors as possible can vote, which means that, when joining Tesla executives, the company should continue to run exactly how it sees fit, without outside interference. .
And that, for me, is worth the premium.
Disclaimer
I am Tesla [NASDAQ:TSLA] Shareholder who has purchased shares within the previous 12 months. The research I do for articles including this one may force me to increase or decrease the stock position. However, within 48 hours after an article is published I will not do this in which I discuss matters that I think may physically affect the share price. I do not believe that my voice itself can or will influence the share price, and I strongly warn anyone against using my work as your sole data point to choose to invest or dive into any company. . My article is my opinion, which was formulated using research based on publicly available data. However, my research or conclusion may be wrong.
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About the author
Fruitful Mogul A businessman first, Froogle Mogul looks at EV from a business perspective. After working in multiple industries and significant money management roles, he believes the way to convince people that the EV revolution is here is by looking at vehicles like business.
