First Apple, then Tesla – stock splits, it seems, are back in fashion.
Almost a quarter of US stocks split their stock in 1982, but splits have since become a rarity. Only two S&P 500 companies split their stock last year, with companies such as Amazon and Google parent Alphabet becoming increasingly casual about four-figure stock prices.
A stock split is a purely cosmetic affair. Apple, which last week traded around $460, has announced a 4:1 stock split. Instead of having one share worth $460, a 4:1 split means shareholders would have four shares trading at $115. Nothing fundamental has changed.
However, Tesla investors seemingly think otherwise. Shares jumped 13 per cent on Wednesday after it followed Apple’s lead and announced a five-for-one stock split. They continued to advance the following day, ensuring a two-day gain of 18 per cent.
One might not take much notice if this was a small-cap stock in an illiquid, inefficient market. However, with a market capitalisation of some $270 billion, Tesla is one of the most valuable companies in the world. It gained some $40 billion in market capitalisation even though the company’s fundamentals were completely unchanged.
Tesla is a speculative stock, but this is bananas. As Ritholtz Wealth Management's Josh Brown quipped, "it's getting 1999ish in here".
