Tesla (TSLA -2.21%) after markets closed Tuesday announced a planned five-for-one stock split, a move that could make the stock more attractive to price-sensitive investors.
Shares of Tesla have had an incredible run in 2020, up 229% year to date. The stock closed Tuesday at $1,374.39 apiece, well above its $211 52-week low. Although stock investing 101 teaches to ignore share price and instead rely on valuation metrics, some investors anchor in on share prices, tending to shy away from high numbers.
Image source: Tesla.
A stock split reduces the price of a stock without changing the value of the investment. In Tesla's case, the company intends for holders as of August 21 to receive four additional shares for every one they own. At Tuesday's closing price, each of those five shares (four additional + the original share held) would be worth about $274.88, for total consideration matching the current share price.
While the value of an investment in Tesla shouldn't change due to the split, the lower price could attract new investors to the stock.
Shares of Tesla traded up 7% in after-hours trading, adding more than $15 billion to the company's market capitalization despite no change to the automaker's fundamentals. For context, the market cap of fellow automaker Fiat Chrysler Automobiles (FCAU) is currently $23 billion.
