In a surprising announcement that sent Tesla share price higher, the company made it public that starting August 31st, a five-for-one split applies to its stock price. Tesla share price surged more than 7% in after-hours trading, seen now close to $1470.
The idea is to offer investors and employees more access to the company’s stock. However, this is not really an issue with fractional share trading.
Nevertheless, the problem with fractional share trading is that it is not available at all brokerage houses. Moving an investing account is complicated due to share liquidation and all. Hence, the accessibility argument remains valid.
In earnest, the split creates new investor demand. Why? To start with, it lowers the cost of capital, making it easier for the company to raise capital if need. Moreover, more people now afford to buy a share of Tesla. Finally, the intrinsic value or the company rises because future free cash flow can be discounted at a lower rate.
Another interesting take is that the market is frontrunning index funds ahead of the S&P500 inclusion. To match the benchmark, index funds must adapt by buying Tesla shares and thus supporting the Tesla share price.
Tesla share price has been on a tear higher since the March meltdown. Investors prepared for the company meeting the S&P500 inclusion criteria and celebrated on the positive news brought by the Q2 2020 EPS announcement.
The current split makes it difficult to interpret the Tesla share price. Any possible technical analysis scenario should consider that the new price becomes effective September 1st, so any speculation on Tesla share price refers to the remaining days in August.
$1,700 is viewed as resistance while the lower edge of the rising channel is seen as support. A strategy is to go on the lower timeframes and scalp the range by selling overbought and buying oversold areas using an oscillator, to make the most of the range.
