The trend of mega cap growth stocks splitting shares continues.
Tesla (TSLA) plans to ask shareholders to authorize additional shares to enable a stock split at this year’s annual meeting. This would mark the second split for the TSLA in two years.
The Pavlovian response has been to buy the stock on these announcements. Do investors want to go back to the well one more time?
According to the SEC filing, TSLA shareholders would receive a special dividend in the form of additional shares based on the shares they currently own. The company did not say how many shares it would offer. TSLA’s Board has approved the plan, but it has not approved the actual split.
A stock dividend is simply a dividend paid to shareholders in the form of additional shares instead of cash. Basically, if TSLA does a 5-for-1 split, it would give investors four shares for every share they owned.
Shareholders would have to vote in favor of the split but we should note that the company has yet to schedule its meeting. The 2021 meeting was held in October 2021 in Austin, Texas.
TSLA shares rallied 6% in reaction to the news. Shares slumped 4% in 2022 before the headline. The pause should not be a complete surprise as the stock rallied 49% in 2021 and an incredible 740% in 2020.
The company last split its stock in August of 2020. TSLA was trading at $1300 when it announced the split. It would rally to $2000 ahead of the action. The stock would open around $500 post-split and has more than doubled to $1076.
The stock split announcement continues a mega cap growth trend. Amazon (AMZN) announced a 20-for-1 split two weeks ago. The stock had been the worst performer among big tech in 2021 and was down 16% to start the new year. In the fourth quarter, AMZN reported its slowest quarterly growth since the first quarter of 2002.
Amazon will give shareholders 19 additional shares for each share held on June 3. AMZN begins trading on a post-split basis on June 6. Shares of the tech giant are up approximately 18% since the announcement compared to a 7% rally in the Nasdaq.
Other mega cap tech names to announce a stock split include:
- Alphabet (GOOGL) announced February 1 that it would do a 20-for-1 split effective July 15.
- Apple (AAPL) split its stock 4-for-1 in August 2020.
- Tesla (TSLA) split its shares 5-for-1 in August 2020.
- Nvidia (NVDA) split its stock 4-for-1 in July 2021.
The news helps overshadow headlines that Tesla was forced to halt production at its Shanghai facility due to covid lockdowns. Bloomberg reported that TSLA would likely shut down for four days. It is unclear how long the lockdown will continue but the company was projected to build around 450K vehicles a year at the facility.
Tesla could offset some of the production declines in Germany after it launched its Berlin Giga factory last week.
Supply issues are the biggest constraint for the company. The launch of the Berlin and Austin facilities should help some of the capacity burdens but shortages will be a headwind for the stock heading into Q1 earnings.
A stock split does not provide any additional value to the stock. The general buying thesis is that it allows retail entry because of the lower costs in both stocks and options. There will be speculation that it could enter the price-weighted Dow given its influence in the energy sector and large market cap.
Shares of TSLA are on an impressive run, rallying 40% since finding support at its 50-weekly moving in mid-March. It muscled through it 50-sma and 200-sma ($865-900) ahead of the split announcement. The stock has now rallied to $1100 post-news.
The tailwind around a stock split will remain, but market participants continue to wait for the official announcement and details. The stock will have headwinds as the production and supply chain issues will raise questions around Q1 earnings. There is also growing resistance as the stock approaches the $1200 level and all-time highs of $1243. This is on top of a parabolic run over the past two weeks.
There is upside but it is likely to be limited in the short term. We would prefer to stay patient and avoid chasing this name. Placing alerts around $1020 to buy pullbacks would be more prudent.