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How Should You Trade Tesla Stock Ahead of Stock Split?

The coronavirus pandemic may have proven to be a major blow for most stocks in the market but electric vehicle manufacturing giant Tesla Inc (NASDAQ:TSLA) has actually had a great year so far and seen its stock reach new heights. However, another event is around the corner which could have a profound effect on the Tesla stock and it is perhaps important for investors to consider it.

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Key Factors to Watch

The company is all set to go for a share split later on in August and the news had proven to be a boost for the stock. On Wednesday, the Tesla stock moves up on the back of the news and it is perhaps time to figure out if the stock is worth investing in.

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According to the announcement made by the company, shareholders are going to get 5 new shares for each share held and the total value of those shares is going to be equal to the pre-split value of the share. The Tesla stock is trading at levels of around $1550 and following the split, each share is going to be worth around $310. There will now be more shares of the growth stock available in the market and hence, it will be far more accessible to a larger pool of investors.

That being said, there are certain things that investors would need to consider before they take a call either way. Firstly, a stock split is not going to enhance the valuation of the company and it is no indication of the long term potential of Tesla. It goes without saying that there is expected to be a surge in demand in the early days and in addition to that, the dramatic reduction in the share price is also going to give the Tesla stock a far better chance of being added to the Dow Jones Industrial Average.

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Experts had earlier suggested that the current share price of the stock could be a hindrance to Tesla getting added to the index. In the long run, the trajectory of the company’s share price is going to be decided by Tesla’s business performance and on that score, a stock split is not going to have much of an impact.

On the other hand, it is also necessary to consider if the stock is worth investing in regardless of the current valuation of the stock. That again brings in the fundamental question of the company’s business. The company’s stupendous performance in recent quarters is already priced into the stock. Hence, the current share price might prove to be a bit too optimistic. 

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