Electric vehicle (EV) king, Tesla (TSLA -1.92%), will ask shareholders to approve a 3-for-1 stock split at its Annual Meeting of Stockholders on Aug. 4. With Tesla stock down nearly 40% year to date, the split may be a tactic to try and attract new retail investors and potentially boost its share price. When stock splits transpire, the number of outstanding shares increases, and the price per share decreases.
This occurs proportionately so that the actual market value of the company remains unchanged. So, while it's possible that a stock split could lure a new wave of individual investors who otherwise wouldn't pay a higher price, nothing changes about the company, fundamentally speaking. For this reason, investors shouldn't be concerned about Tesla's potential stock split; rather, they should focus on how the underlying business is currently performing.
Let's dive into the company's current situation and decide whether or not it's a sound investment opportunity right now.
How's Tesla's business performing?
Tesla will post its second-quarter earnings report after market close today, but the company provided investors with a sneak peek of production and deliveries in a July 2 press release. In Q2, the EV leader's production and vehicle deliveries dropped 15.3% and 17.9% quarter over quarter, respectively, down to 258,580 and 254,695. The slowdown from a quarter ago was due to a COVID-related shutdown in its Shanghai factory and supply chain restraints out of the company's control. When it's all said and done, however, both production and deliveries still expanded 25.3% and 26.5% on a year-over-year basis, indicating a resilient performance amid a challenging macro environment.
In its first quarter of 2022, the EV juggernaut's total revenues rocketed 81% year over year, up to $18.8 billion, and its adjusted earnings per share climbed 246% to $3.22. Its gross margin and operating margin both expanded 779 and 1,349 basis points to finish at 29.1% and 19.2%, respectively. What's more, the company currently has $17.5 billion in cash and cash equivalents and generated $2.2 billion in free cash flow (FCF) in Q1, equal to a staggering 660% increase year over year.
Short-term headwinds may halt growth for the time being, but Tesla is well resourced to continue its rapid expansion over the long run. Plus, Wall Street analysts forecast the company's top line to grow 58% to $84.9 billion in fiscal 2022, and its adjusted earnings per share to rise 75% to $11.78. Those are striking growth rates for a company facing a series of obstacles. Moreover, its sturdy balance sheet and cash-flow generation add another layer of security to its investment profile.
Should investors pounce on Tesla stock right now?
In my opinion, Tesla remains a surefire long-term play. Of course, short-term headwinds could drag its stock price further in the coming trading sessions, but prudent investors shouldn't be concerned about that. The company is a clear leader in an industry that is expected to register a compound annual growth rate (CAGR) of 24.5% through 2030, up to $957 billion, according to Market Research Future. That long runway for growth, a stable balance sheet, robust cash-flow generation, and shrinking valuation make Tesla a top investment opportunity right now. Lastly, the impending stock split shouldn't be a factor for long-term investors.
