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Why Tesla Stock Surged Higher on Monday

By Daniel Sparks – Aug 31, 2020 at 11:37AM

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Investors are piling into Tesla stock following its stock split.

What happened

Shares of Tesla (TSLA 0.08%) surged higher on Monday. The stock was up more than 9% as of 11:07 a.m. EDT.

The stock's sharp move higher follows the automaker's stock split. Shares began trading on a split-adjusted basis Monday morning, opening up the trading day at about $445 -- a fifth of where the stock was trading previously. But shares have soared since market open.

A chart showing a stock price moving higher

Image source: Getty Images.

So what

Tesla's stock split seems to have triggered an increased appetite in the market for the already hot growth stock. Shares split by five as part of a 5-for-1 forward stock split that was announced earlier this month. 

Another potential catalyst for Tesla stock on Monday may have been a bullish note from Argus analyst William Selesky. The analyst increased his split-adjusted 12-month price target for the stock from $378 to $566 and reiterated a buy rating for the electric-car maker's shares. Improving production, growing demand for the company's vehicles, and a powerful brand are enough to justify the stock's high valuation, he says. 

Now what

Tesla's full-year vehicle delivery forecast certainly suggests both production and demand are growing -- an impressive feat given the challenges the company faced this year. Total global auto sales for all auto manufacturers are forecast to fall more than 20% in 2020 compared to 2019 thanks to the coronavirus pandemic, yet Tesla recently guided for total deliveries during the year to jump from about 368,000 in 2019 to 500,000 this year.

Importantly, investors should keep in mind that a forward stock split doesn't make a stock fundamentally more attractive. While it results in a lower stock price, it also reduces each share's ownership in the underlying company.

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.

Stocks Mentioned

Tesla Stock Quote
Tesla
TSLA
$194.86 (0.08%) $0.16

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