The three-for-one stock split has arrived. And shares have been climbing since the company announced the split in early August. Now the question is what should investors expect Tesla stock to do after the split?
(ticker: TSLA) stock will trade at about a third of Wednesday’s closing price. Tesla enacts the split by paying a dividend of two shares for each share held after trading closes.
Investors tend to like stock splits: They believe they signal something positive about a company’s future. No one, after all, splits a stock they expect to fall.
Stock splits also make stocks less expensive, potentially making them more accessible to a wider base of retail investors. It also makes trading options on a stock less expensive.
The first time Tesla split its stock, in August 2020, the stock gained an incredible 81% between the split announcement and the day of the stock split.
Tesla stock is up about 5% since its announcement of a 2022 split. o
down about 0.2% over the same period. Stocks outperformed, but nowhere near the level of the 2020 breakout.
Part of the reason for this is that investors have been waiting for this latest split for a long time: it was discussed since March and became official in August. The first split was a surprise, relatively.
Now with the actual split in the rearview mirror, investors should focus on what’s next. The last time the stock split in August 2020, shares fell the next day and are down about 14% over the next month.
Three months after the split, however, shares had recovered all of that dip and more, rising about 14% compared to the stock price on the date of the split. Six months later, shares are up about 36%. Between six and nine months, the shares fell, but remained up about 25% compared to the share price on the day of the split. And a year later, Tesla shares were up about 48% compared to the price on the day of the split.
The stock has done well, outperforming the S&P 500 at three, six, nine and 12 months. Shares are up about 18 percentage points more than the S&P a year after the August 2020 split.
Whether or not that kind of outperformance will be repeated this time around is anyone’s guess. There is some reason for optimism. Bank of America found that, since 1980, split stocks outperformed the market by about 16 percentage points a year after the split.
A stock split, of course, may not be the reason the stock beat the market after the actual split. Correlation does not always equal causation.
Stocks that are split tend to be going up already—that’s why they should be split—and positive price momentum is also a strong predictor of future stock performance.
Of course, Tesla’s stock will be affected by the health of the overall economy along with its own electric vehicle deliveries and earnings.
Write to Al Root at email@example.com