Seeing the results of Apple’s decision to split its stock (a higher share price), Elon Musk, the world’s greatest stock promoter and decent car manufacturer, decided to split Tesla’s shares.
Sure enough, Musk’s bet has paid off with Tesla’s shares rising almost 7% on the news. This is true even though a stock split simply divides the pie into more pieces.
Institutional investors should pay attention here. The assumption that large stocks are priced rationally because there is no way the smart money in a stock this big ($250 billion plus cap) falls apart if a stock split results in a 7% share price gain.
The Financial Times has more:
Tesla on Tuesday handed a reward to the army of enthusiastic retail investors who have helped lift its share price to dizzy heights this year, as it announced the first stock split in its history as a public company.
News of the US electric carmaker’s five-for-one split, to take effect on August 28, fuelled a 7 per cent jump in its shares in after-market trading on Tuesday.
In theory, the news of a share split should make no difference to the price, since it does not change the overall value of the business. But reducing the price of each share is often seen as a way to make them more attractive to small shareholders, as well as a sign of confidence by management in future market gains.