Investor's Corner

Tesla’s (TSLA) Monday stock split isn’t changing ARK’s price target

(Credit: Tesla)

Tesla (NASDAQ: TSLA) will perform its 5:1 stock split on Monday, where the price will be adjusted from its $2,213.40 price per share at the closing bell on Friday. Although the price will be reduced by 80%, ARK Invest isn’t changing its outlook for the future of the electric car company.

“The long term story with Tesla, our thesis is still intact,” Tasha Keeney of ARK said to Yahoo Finance’s The Ticker“Our expected value for Tesla by 2024 is still $7,000.”

Tesla announced on August 11th that its Board of Directors had approved a 5:1 stock split to make its shares more accessible to employees and individual and retail investors.

The number of shares available will multiply by five, while the price per share will drop by 80% in an adjustment to keep the company’s valuation the same. The price of the stock, in reality, is still the same, Keeney suggests.

“A stock split now especially with fractional shares shouldn’t have that big of an impact,” she said. However, some less knowledgeable investors may believe that the company’s shares are becoming “cheaper,” and that could drive the volume of trading on Monday to be higher than normal. But, Kenney reminds those who believe that the company’s stock is becoming less valuable is not necessarily the case.

“But of course you could see some price appreciation from investors basically misunderstanding it, thinking that it might be cheaper.”

Splits do not change the fundamentals or the market cap of a company. The lower price point is a way to get those who cannot afford a company’s shares an opportunity to invest once again, while the valuation of a company remains identical to what it was before the split.

TSLA shares have grown exponentially in value in 2020, and Keeney contributes the surge in price to Tesla’s response to the COVID-19 pandemic. She believes that the company’s ability to continue building upon its lead in the EV sector has solidified its position as the best electric car company on Earth.

“If you think of a traditional automaker who is investing in electric vehicles — and basically how they’re going to handle that when their core business has really been sinking. It’s not their core expertise,” Keeney said.

Tesla has worked specifically on building electric cars since developing the first-gen Roadster in 2006 when the company unveiled its first prototypes. Other automakers have focused on combustion engines since then, and Tesla has years of experience and expertise in building and manufacturing sustainable electric cars. Other car companies are struggling to catch up because they’re still working on developing the core infrastructure.

Tesla’s stock will split to $442.68 on Monday.

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

Tesla’s (TSLA) Monday stock split isn’t changing ARK’s price target
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