Tesla (TSLA 0.80%) , the king of electric vehicles, will seek shareholder approval for a 3-to-1 stock split at its Annual Meeting of Stockholders on Aug. 4. The split may be an effort to appeal to new retail investors and possibly boost the share price after Tesla stock fell nearly 40% this year. When a stock split occurs, the amount of outstanding shares rises, and the price per share drops.
The price difference between the options is determined by a mathematical function, which reduces it in proportion to the stock’s current market value. This occurs equally, thus preserving the firm’s real market value. As a result, while it’s possible that a stock split might attract new individuals who would not previously pay more for Tesla shares, nothing changes on an fundamental level with regard to Tesla. As a result, investors should not be concerned about Tesla’s potential stock split; rather , they should concentrate on how well the actual business is performing right now.
Let’s look at the company’s current position and see if it’s a good investment proposition today.
How’s Tesla’s business performing?
In Q2, Tesla’s production and vehicle deliveries fell 15.3% and 17.9% year over year, to 258,580 and 254,695 units respectively. The decrease from one quarter to the next was due to a COVID-related shutdown at its Shanghai factory and supply chain constraints beyond Tesla’s control. When it is all said and done, both production and deliveries rose 25.3% and 26.5%, demonstrating a resilient performance in an uncertain macro environment.
In the first three months of 2022, Tesla’s EV behemoth recorded a nearly 81% year-over-year surge in total revenues, up to $18.8 billion, and an increase of 246 percent in adjusted earnings for every share. Its margin and operating margin both improved 779 and 1,349 basis points. Furthermore, Tesla currently has $17.5 billion in cash equivalents and generated $2.2 billion in free cash flow (FCF) in Q1, representing a stunning 660 percent increase.
Tesla is well-capitalized to continue its rapid growth in the long run, even if short-term difficulties stall development for a time. In addition, Wall Street analysts predict that Tesla’s top line will rise 58% to $84.9 billion in 2022, and its adjusted earnings per share will jump 75 percent to $11.78. Those are exceptional growth rates for a firm confronting several obstacles. Furthermore, because of its strong financial position and cash flow generation, the company offers yet another degree of protection to investors’ portfolio value.
Should investors invest in Tesla stock right now?
Tesla is still a solid long-term bet in my opinion. Of course, the stock’s future trading sessions might be marred by headwinds, but investors should not be concerned about that. According to Market Research Future, Tesla is already the leader in an industry that will grow at a compound annual growth rate (CAGR) of 24.5% from 2020 through 2030, reaching $957 billion in sales. Tesla is a great investment opportunity right now due to its long runway for growth, balanced finances, strong cash flow generation, and declining valuation. Finally, the pending stock split shouldn’t concern long-term investors for too long.