Tesla drives into 'bubble' territory before lucrative stock split
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Tesla Inc. cruised further into "bubble" territory Friday as investors snapped up shares in the automaker to beat a deadline for taking advantage of an upcoming stock split.
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Shares in the Palo Alto, California-based company have surged 379% this year, raising its market valuation to $373 billion. Investors must own Tesla stock at the close of business on Friday to cash in on a 5-for-1 stock split after the close of trading on Aug. 28.
The world’s largest carmaker by market capitalization, Tesla is worth 37% more than Japanese automaker Toyota Motor Corp. ($187 billion) and German automaker Volkswagen AG ($85 billion), the No. 2 and No. 3 automakers combined.
Additionally, its market cap is 310% bigger than U.S. automakers General Motors Co. ($41 billion), Ford Motor Co. ($27 billion) and Fiat Chrysler Automobiles ($23 billion) added together.
“We used to talk about its market cap versus General Motors, now we're talking about its market cap versus the entire rest of the global auto industry,” said Matt Maley, Boston-based chief market strategist at Miller Tabak & Co.
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“It's Tesla's world and everyone else is paying rent,” Wedbush Securities analyst Dan Ives told FOX Business, adding that the stock is “still in the middle innings of getting rerated.”
Ives raised his own price target to $1,900 a share on Monday, when the stock was trading at $1,650, due to strong demand emanating from China and optimism surrounding CEO Elon Musk's upcoming Battery Day event.
Ives, who has a bull-case price target of $2,500, said the stock split is “going to add to retail momentum” ahead of the September presentation, which he believes has the potential to be a “game-changer” in terms of battery technology.
Miller Tabak’s Maley says the upcoming stock split could provide a boost, albeit temporarily.
“My understanding is that when they're announced, the stock goes up and when it actually takes place, the stock also goes up, but then it usually flattens out shortly thereafter,” he said, citing what he learned when starting on Wall Street in the late 1980s.
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While Maley sees the “parabolic move” in Tesla’s stock as evidence of a “bubble,” he doesn’t think the company is going to fail.
“Amazon was in a bubble in the late 1990s,” he said. “It crashed and came roaring back.”
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