There are only so many “positive news” levers a company can pull in the absence of consistently turning a legitimate profit: stacking up receivables, releasing and taking deposits for “new” products that may not ever materialize, pulling borrow and securing the float while mysterious out of the money call option purchases go off daily, selling regulatory credits to claim profitability while your core auto selling business loses money and adjusting warranty reserves to gear your accounting are a few examples.
This box of tricks, inclusive of most everything aside from just being a consistently profitable company, includes very few tactics that Tesla hasn’t tapped. But today, the company pulled one more rabbit out of their hat with the announcement of a 5-for-1 stock split.
And to prove the market has reached hysteria, Tesla’s market cap is up by about $16 billion after hours. A stock split, of course, does nothing to add equity or value to a company – instead, it just multiplies the number of shares outstanding and divides the company up into smaller parts.
Of course, those “sophisticated” enough to be buying shares in Tesla at a $250 billion valuation may not realize this – as they have added nearly half of General Motors’ market cap to the company in the after market session on the news.
$TSLA up $18B on stock split.
Even 1999 didn’t provide that level of stupidity.
— Dean Sheikh (@DeanSheikh1) August 11, 2020
Meanwhile, we’re sure the news has nothing to do with the fact that Tesla shares have lagged over the last couple of sessions – and we’re double sure the news has nothing to do with Elon Musk watching Apple shares soar on their announcement of a stock split.
“Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020,” the company said in a corporate filing.
Though the split will make Tesla shares more “affordable”, Charles Schwab and other online brokerages are already offering fractions of shares held on their balance sheets for as little as $5. So the idea of luring in more bagholders who have no clue what a market cap is to purchase a stock that appears to be cheaper may not work.
So, why is Tesla going ahead with the stock split if retail investors are clearly having no trouble accessing the company’s shares?
We’ll let you take a guess.
Looks like the stock needs a boost: #Tesla declared 5-1 stock split in form of stock dividend to make stock ownership more accessible to Robinhooders. Each stockholder of record on Aug21 will receive dividend of 4 additional shares. Trading will begin on split-adj basis on Aug31. pic.twitter.com/qe7690lFlu
— Holger Zschaepitz (@Schuldensuehner) August 11, 2020