That might be a small disappointment to investors betting on a repeat of the past, but employees of
(ticker: TSLA) shouldn’t care as much: For them, it means more stock at a better price.
Tesla stock is up about 8% since the company declared a 3-for-1 stock split on Aug. 5. The
is up about 4% over that period. That’s a small gain, comparatively. Back in August 2020, shares were up 46% seven trading days after the split announcement. In total, Tesla stock rose around 80% from the declaration to the effective date.
Expecting a repeat of 2020 is probably too much. There are about nine trading sessions left before the split is effective. And this split was telegraphed before the announcement at Tesla’s annual shareholder meeting. Management has been talking about this 3-for-1 split since March.
That might disappoint investors attempting to make a quick buck ahead of the split. But for employees of Tesla, there might be an opportunity: They can buy shares at a better price.
Tesla has an employee stock purchase plan that allows workers to purchase stock with up to 15% of their total compensation at 85% of the prevailing stock price, subject to limitations.
So one share of Tesla, which traded at around $930 today, would cost a Tesla employee about $790.50.
Plus, less volatility is better for employee purchase plans. Employees, like investors, don’t want purchase prices to move wildly.
Tesla didn’t respond to a request for comment about the limitations or how many employees avail themselves of the opportunity.
So if a Tesla employee buys one stock of their employer by Aug. 17, they’ll receive two additional shares on Aug. 24 when the split goes into effect. Of course, the split didn’t increase the value of the one share; it simply slices one share into three parts.
Why do investors buy stocks that are splitting? It’s a fair question. Again, the total value of someone’s holding in a stock doesn’t change, just the number and price of shares. Still, investors believe stock splits are a signal from management that good times lie ahead. Companies don’t split their stock when they expect it to fall. And a lower share price can make shares more attractive to retail buyers.
In trading Tuesday, Tesla stock was up 0.3% to $931.11. The S&P 500 rose 0.6%, while the Dow Jones Industrial Average climbed 1.1%.
Write to Al Root at firstname.lastname@example.org