A recent 3-for-1 stock split made shares of Tesla Inc. (NASDAQ:TSLA) more appealing to regular investors. Is it worthwhile to purchase the stock today, following the split, at its current price of about $280 per share?
Stock Splits Are Back in Style
Tesla last divided its stock in August 2020, and due to a surge in new investors and improved liquidity, shares surged. Since then, shares have surged dramatically, and in October 2021, the company will join the exclusive $1 trillion club. The stock had increased in price significantly for investors with smaller budgets, which hurt total trading activity and turned away potential buyers. Tesla chose to divide its stock once more in response to the high price of its shares. This will make its shares more accessible to investors. A three-for-one stock split was authorized by Tesla’s board in June 2022, subject to shareholder approval at the organization’s annual meeting on August 4.
The popularity of stock splits has skyrocketed in recent years. One of the most encouraging news that stockholders can get is this one. Along with Tesla, other market giants such as Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) have already divided their stock in 2022.
Early in March, Amazon announced its 20-for-1 split, the first by the corporation since 1999. Without a doubt, it stunned the market. A few months later, on June 6, the split became effective. Alphabet disclosed its intentions to divide its equity 20-to-1 back in February. Similar to Amazon, investors flocked to buy Alphabet shares in large numbers. On July 18, Alphabet stock began trading on a split-adjusted basis.
A stock split, of course, has no impact on a company’s market capitalization. However, it reduces the cost of each share, making it more straightforward for the stock price to increase once again and presenting investors with significant advantages.
Returning to Tesla, we think that the company is surrounded by many potential catalysts, making it a tempting buy right now.
Tesla’s Important Growth Drivers
Tesla, an EV manufacturer, has developed into a dynamic technology developer over time. With an approximately 70% market share, it dominates the battery-powered electric car sales market in the U.S. The most popular EV vehicle in the US is the company’s flagship Model 3. Model Y has also experienced tremendous success.
The automaker is benefiting from the strong demand for the Model 3 and Model Y, which account for a sizable portion of its overall deliveries. Between 2019 and 2021, deliveries of the Model 3/Y experienced a CAGR of more than 74%. Musk is still upbeat about achieving the goal of a 50% increase in average yearly deliveries over several years. Growth in deliveries is expected to be supported by the ramp-up of production at gigafactories 4 (in Berlin) and 5 (in Austin) as well as the introduction of new models, such as Semi and Cybertruck, starting in 2019.
Tesla is gaining cost and productivity improvements with the help of high volumes, boosting profitability. Gross margins fell sequentially in the most recent reported quarter due to a temporary reduction in Shanghai production volume. However, the indicator is projected to increase in the second half of 2022.
Tesla’s most recent reported quarter saw its sixth consecutive profit beat. The company’s top and bottom lines expanded 41.6% and 56.5% in the second quarter despite challenging business conditions.
The business has never experienced any problems producing significant sales growth. Tesla’s annual income has increased by 668% since 2016. Since 2012, Tesla has increased its annual revenues by double-digit percentages each year. We think Tesla would continue to grow its automotive revenues due to robust deliveries and an increase in the average selling price of vehicles.
Revenues from energy generation and storage for Tesla are also increasing due to the success of its Megapack and Powerwall products. It is commendable that attempts have been made to improve its balance sheet. Simply said, Tesla appears to be operating at full capacity.
The EV giant is anticipated to produce $85 billion in sales for the current fiscal year (FY22), representing a double-digit increase of approximately 58% over the previous year. The top line is anticipated to increase by an additional 41% in FY23.
The $3.73 Zacks Consensus Estimate for FY22 earnings per share indicates a 65% increase year over year. In FY23, a further 35.5% growth in the bottom line is anticipated.
High Price Is Justified
Even though Tesla continues to appear to be outrageously expensive, its stock price has long been disconnected from the company’s core competencies. An automaker that typically produces a million vehicles annually would need to increase production 16 times to obtain fair value. However, Tesla is more than simply an automaker; it is also a software and battery developer, a solar technology provider, and a leader in innovation. In reality, many frequently refer to Tesla as a tech business.
Tesla has a much more inventive engine, a stronger brand, and superior growth prospects than other businesses in the same industry. Tesla thus appears to be positioned to maintain its position as a significant player even as the EV market gains momentum and competition heats up.
Consequently, Tesla is worth buying for long-term returns as its shares are trading substantially below their post-stock split all-time highs. Tesla should be at the top of the list for investors willing to accept high valuation levels and seeking companies with promising growth prospects.
Featured Image: Megapixl @Svetlanaangelus
