Please ensure Javascript is enabled for purposes of website accessibility

Why Tesla Shares Skyrocketed in August

By John Bromels - Sep 6, 2020 at 7:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

And what shareholders might want to do with them in September.

What happened

Shares of electric-car maker Tesla (TSLA -2.62%) soared 74.2% in August, according to data provided by S&P Global Market Intelligence. On the last day of the month, Tesla's stock split five for one.

Tesla's shares closed out the month at $498.32 per split-adjusted share. Pre-split, that would have been a share price of $2.491.60. On July 31, its shares closed at "just" $1,430.75. This continued Tesla's 2020 winning streak: The company's stock price appreciated nearly 500% between Jan. 1 and Aug. 31. 

A rocket blasts off above the clouds.

Image source: Getty Images.

So what

August brought a mixed bag of news for Tesla the company. On the one hand, it was reported that Panasonic was increasing its investment in Tesla's Gigafactory 1 by $100 million. On the other hand, the company also encountered some setbacks in China. 

But who am I kidding? Tesla's incredible share price jump was due almost entirely to its decision to split its stock. All of the stock's gains occurred between the company's Aug. 11 announcement that it would split its shares five for one, and its first day of post-split trading, Aug. 31. 

A stock split doesn't affect the value of individual investors' holdings, and with many brokers offering fractional shares, a high share price isn't the barrier to ownership that it once was. Still, many investors balk at plunking down four figures for a single share, so Tesla's decision was seen as likely to entice a lot of new investment.

That may have been a self-fulfilling prophecy: Expecting a huge windfall on Aug. 31, investors began piling into the stock. That drove the price higher, which prompted more interest driven by fear of missing out. It all culminated in the first post-split day itself, when a record 118.4 million shares changed hands (about double Tesla's previous volume record, set in February). 

Now what

Now investors are taking their profits: Tesla's shares are down nearly 20% so far in September. It's not really surprising. Investors bought the carmaker's stock at ridiculously high valuations expecting a big payday on Aug. 31. Once those bets paid off, all that was left was that ridiculously high valuation. Now that the stock price has started dropping, short-term investors are getting out to protect their gains. 

Honestly, now's probably a decent time to take some profits from Tesla. Even with recent drops in share price, the stock is still up more than 350% year to date, and more than 700% over the last five years. Tesla's price is so divorced from any traditional valuation metrics that it's impossible to know where it's likely to end up in a month, let alone a year or two. 

But nothing fundamental has changed about the company itself or its operations, so investors shouldn't feel the need to follow the crowd to the exits if they're still bullish on the stock.

John Bromels owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$859.89 (-2.62%) $-23.18
Panasonic Corporation Stock Quote
Panasonic Corporation
PCRFY
$8.49 (-0.12%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
389%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.