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Tesla Stock Closes In on $2,100. Here's Why It's Rising Sharply Again

By Daniel Sparks – Aug 21, 2020 at 3:39PM

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Investors seem convinced that shares are a buy ahead of the electric-car maker's stock split later this month.

What happened

Shares of Tesla (TSLA -6.12%) jumped sharply on Friday, extending the stock's torrid run-up over the last year. As of 2:45 p.m. EDT, the stock was up about 4.5% on Friday. This put shares above $2,090 -- an incredible accomplishment considering the stock was trading at just $211 one year ago.

The growth stock's gain is likely driven primarily by bullishness from investors ahead of the electric-car maker's planned stock split later this month. In addition, AdvisorShares CEO Noah Hamman, a market strategist, said in an interview with Yahoo! Finance on Friday that he thinks $2,000 per share could look "fairly low" one to two years from now. 

Vehicle production at Tesla's factory

Tesla factory. Image source: The Motley Fool.

So what

Shares of Tesla are now up more than 800% over the past year. The stock's move higher was primarily driven by impressive business execution, including soaring vehicle sales in 2019, the rapid build of a new factory in China, an earlier-than-planned Model Y launch in March, and promising construction progress at yet another new factory.

The stock's huge move higher since Aug. 11, however, seems to be primarily driven by the company's announcement that it will soon split its stock into five equally sized shares that together equal the value of what one Tesla stock currently trades at.

Hamman told Yahoo! Finance on Friday that Tesla stock "can probably continue to go up" to levels that make even $2,000 seem like a reasonable entry point (on a split-adjusted basis, of course) one to two years from now. But Hamman warns that the stock's valuation has become "concerning."

Now what

Tesla will need to prove to investors that its business is worth its $390 billion market capitalization. To do this, it will likely need to exceed its guidance for 500,000 vehicle deliveries this year and show substantial improvements in its Autopilot technology over the next 12 months in order to convince investors that its autonomous driving aspirations can become a reality.

Tesla shares will begin trading on a split-adjusted basis on Aug. 31. Investors should keep in mind that a stock split does nothing to make the stock's intrinsic value more attractive. It simply makes the shares more affordable.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

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