Could a Stock Split Boost Tesla’s Dying Engine? That’s why analysts are forecasting a rise of up to 100%


Could a Stock Split Boost Tesla’s Dying Engine? That’s why analysts are forecasting a rise of up to 100%

Tesla shares rose at a breakneck pace in 2020 and most of 2021 — nearly vertical in November — but such runs don’t last forever.

Since hitting a closing high of $1,229.91 on Nov. 4, the stock has fallen an amazing 47%.

But the EV giant is down, not out.

With the business still growing rapidly and the company’s plan for a stock split making headlines, Wall Street continues to see opportunity in the stock.

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split stocks

In a proxy statement filed after the market closed last Friday, Tesla revealed its plan for a 3-for-1 stock split in the form of a stock dividend.

The company will ask shareholders to vote on this plan at its annual meeting in August.

A split doesn’t change a company’s underlying fundamentals, but it can have significant consequences.

By dividing a stock into smaller chunks, each chunk has a lower, more accessible price. These bite-sized stocks often draw more interest from retail investors.

Since 1980, S&P 500 companies that have announced stock splits have returned an average of 25.4% over the following 12 months, according to Bank of America. Compare that to the S&P 500’s average return of 9% over the same period.

In fact, the bank says these stocks also outperformed the benchmark index over the three- and six-month periods following the announcement of a split.

“The company’s underlying strength is a key reason for higher prices,” Bank of America analysts wrote in a note to investors earlier this year.

“Once the split is executed, investors looking to build or increase exposure could rush for the buying opportunity.”

Do not stop

Though Tesla’s stock performance has been disappointing this year, the business remains on track.

In the first quarter, the company delivered 310,048 vehicles, up 68% year over year. Production totaled 305,507 vehicles, 69% more than a year ago.

And there were strong improvements in several key financial metrics.

For the quarter, Tesla’s automotive sales rose 87% year over year to $16.86 billion. Total revenue increased 81% to $18.76 billion.

The company’s operating income grew more than 500% year over year to $3.6 billion, and its operating margin increased a whopping 1,349 basis points to 19.2%.

In fact, it was a record quarter for Tesla in terms of vehicle deliveries, revenue, operating income, and operating margin.

Even more forward?

Contrarian investors are always looking for a growing company with a depressed stock price.

And several Wall Street companies continue to see significant upside in Tesla stock.

On June 1, Mark Delaney, an analyst at Goldman Sachs, reiterated a “buy” rating on Tesla. While Delaney lowered its price target to $1,000 from $1,200, the new target is still 54% above where the stock is today.

Meanwhile, Morgan Stanley analyst Adam Jonas has an “overweight” rating on Tesla shares and a price target of $1,300. This implies a potential upside of over 100%.

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This article is informational only and should not be construed as advice. It is provided without any guarantee.


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