Recently, the stock market seems to be going through a buzz as Tesla stock has soared about 475% in the year 2020. It seems as if Elon Musk’s electric card company is now looking forward to find more investors, thereby splitting its share price and thus, making it more affordable to the average investors as well. Tesla (TSLA) had recently announced to sell of around $5 billion in the new shares currently. The company has recently disclosed the plan in a regulatory filling along with the Securities and Exchange commission on Tuesday.
Not just it is for TSLA, but the same follows for Apple (AAPL) too, as it split it’s stock on Monday thereby outaging E-Trade, Robinhood, and other online brokerages and trading applications. The shares of Tesla surged up to 13% on Monday but it fell 3% on Tuesday to approximately 485 dollars worth a share. The recent stock rise has made CEO, Elon Musk stand as the third richest person in the world at present. Since Tesla could not hold consistent profitability in the past time, it did not make itself up to the list of S&P 500. We did not hear any specific planning from the CEO till now and we have absolutely no clue about what Tesla is going to do with the money that it has been gathering from such an enormous stock sales.
Tesla stock splits: Recent plans of the company
Tesla Inc seems to be planning to share as much as 5 billion dollars of shares at present. Therefore, it would be made even more accessible to the average investors as well. Palo Alto, the California based company now plans to use the earnings to strengthen its balance sheet as well as to upgrade itself for general corporate purposes as well. Tesla is presently raising its money while at the same time, it expands itself with new factories that are coming up in Austin, Texas and Germany. It also completed a recent plant that was put up in Shanghai. Tesla has got a record of raising approximately 14 billion dollars so far over the past decade. It raised up those dollars through secondary stock offerings. However, Tesla shares fell by 3.2% to 482.44 dollars. The stock went up to 500% this year, thereby accounting for the five-for-one stock split thereby making the news as the official Aug 31, 2020. Certainly, it made Musk tagged as the third richest person in the world.
Elon Musk is now richer than Mark Zuckerberg: Tesla stock split leading to controversies
There is no doubt in saying that the leader, Elon Musk had witnessed a chivalric rise in his wealth and his net worth grew by 76.1 billion dollars in just a single year’s span, most of which is spent in the lock down though! We are not sure about what stands in the future, but we can at least comment that Elon Musk is currently the third richest man in the world by passing Mark Zuckerberg, the co-founder of Facebook. As per the Bloomberg Billionaires Index, Musk had a worth of 111.9 billion dollars while Mark was having a worth of 111.2 billion dollars.
Three big issues revealed after the Tesla Stock split
Tesla is one of the examples of those stocks that raised a craze among the buyers in a single equity. There is certainly no doubt in saying that the Chief Executive Officer, Elon Musk is one of the greatest business innovators of all times, and that he has been creating the first no-gasoline needed car. Not just that he innovated the product, but it did successfully establish a brand name in the market. Today, the people who have been questioning the ability of Tesla’s stock to rise over the time must be envious enough, and upset too, to see it reaching beyond the horizon through leaps and bounds.
Here are a few issues that Tesla stock split comes with:
Ridiculously high price or earning ratio of Tesla:
The price or earning ratio of Tesla is insanely high, and it touches up to around 1,100. Based on “expected earnings,” the forward p/e is a mere 140, as collected from the data sources of Forbes. The price/earnings ratio of Microsoft is 39 and that of Apple is 38% currently. Critics have been saying differently on the same, and they say that probably the investors feel as if Elon Musk is going to bring gold from his mines on Mars by the coming year. They even say that the value of those metals would probably show up in the bottom line of the company. Consequently, the price/earnings ratio is basically a metric to determine the valuation.
Competition to the Tesla’s stock:
High-end and middle-brow electric and hybrid electric/gas powered cars can be purchased from established makers. Elon Musk has created the brand, Tesla to give adequate value to the creativity, uniqueness, and style. However, it seems as if the competitors are going to launch marketable alternatives to the original solution really soon. According to the reports, innovating such a high-end machinery was never an easy task for the Tesla innovators either. However, it may take months or may be, years to compete the operations but something fishy is going around to grab away the market share.
Hot Stock syndrome:
Forbes name it the Hot Stock Syndrome by saying that Tesla is currently the one of it. It is the growth stock that is going to end all growth stocks. Analysts are now going to put it among their ‘buy’ recommendations, and not to be left out. A lot of people who are currently new to the stock market might find Tesla as their ‘dream door’ of opening their ways of endless profits. However, it would rather be wise to consider the factors that led to the Tesla’s 5-for-1 stock split.