Recently, the news hit the wires about Tesla Inc (NASDAQ: TSLA) and Apple Inc. (NASDAQ: AAPL) preparing for a stock splits in the end of the of the month. On 31st of August, TSLA will undertake a 5-for-1 split, whereas AAPL will be sliced into 4 parts. For Tesla Inc. this will be the first stock split in its history, while for Apple Inc. this will be its 5th split. AAPL did its first split in June 1987 (2-for-1), followed by the same splits in June 2000 and February 2005. The fourth one was in June 2014, where Apple Inc. went through 7-for-1 stock split.
So why have the boards of directors of those two companies decided to undergo these procedures? Well, first of all, the idea behind any stock split is to lower the price of the company’s share, to make it more attractive to smaller investors and to increase liquidity. Each listed organisation has an outstanding number of shares, which are publicly traded. For example, Apple will increase that number of shares 4 times and Tesla will raise them 5 times. The value of the company doesn’t change, but the amount of outstanding shares increases, therefore the price of the stock declines. So, to take it from the real-world perspective, TSLA, which is currently worth around $2000, will now have a value of $400. AAPL, which at the time of writing is fluctuating around $500, will be available at around $125 per share.
What happens to existing investors and their TSLA and APPL shares?
So, before the stock split occurs, each existing investor has their shares multiplied by a relevant multiplier. In the Tesla scenario, each investor will have their existing stocks multiplied by 5, because of the 5-for-1 split, in order to equal everything out. Apple Inc. will multiply the stocks of their existing investors by 4. For example, someone owning a 1000 shares of TSLA and a 1000 shares of AAPL, will now get an extra 4000 shares in Tesla Inc and extra 3000 shares in Apple Inc.
Generally, a stock split is seen as a reassurance for existing investors that the company is confident in their future growth. For example, after every stock split that Apple Inc. undertaken, their stock rallied to new highs.
Now, the other reason why Tesla Inc. and Apple Inc. might be slashing their stock price is because of the increasing competition. For Apple, the growing amount of new Chinese tech companies, which are rapidly improving the quality of their electronic products, is becoming a huge concern. If it used to be mainly Samsung Electronics Co Ltd (KRX: 005930), now the US tech giant is starting to feel the pressure in the mobile phone segment from companies like Huawei, OPPO, OnePlus and Xiaomi. It is clear that Apple has the prestigious brand and quality behind it. The Chinese competitors might not have the prestigious brand, but they are quickly improving their quality and offering their produce at a more attractive price.
In case of Tesla Inc. and its competitors, for now, there are not many car manufacturers that could compare themselves with Elon Musk’s company. However, as we know, Toyota Motor Corp (TYO: 7203) is currently dominating the hybrid engine market and is rapidly improving their hydrogen fuel cell powered cars, which might come as a threat for Tesla. Also, there are small EV manufacturers, which start to appear on the horizon, picking up investor attention. NIKOLA Corporation (NASDAQ: NKLA) is one of those. Although that manufacturer is still in the process of developing its electric vehicles and currently focuses mainly on trucks, it is already seen as one of the main competitors for Tesla Inc. If NIKOLA develops great electric motors, nothing will be stopping it from stepping into the light vehicle segment.
What could happen after the split?
Certainly, there might be a lot of excitement among potential new investors, both institutional and retail, after the stock split will happen. However, big players, with larger investments in TSLA and AAPL might start thinking of taking some profits of the table after some time. The overall market and the economic conditions are on everyone’s radar right now. Big investors might not wait for the market to turn heavily to the downside and the economic conditions to worsen drastically. They could come out earlier, leaving a bit of opportunity for the next buyers.
We understand that some companies must undertake a stock split procedure, as their share value becomes too high, which may lead to a stock losing its attractiveness, due to increasing competition. The bottom line is, that it all depends on the company’s performance. If the company continues to deliver good results, and if its products and services are still in demand, a stock split could just be seen as a good method to raise extra capital to support future growth.
Tesla Inc – Technical Outlook
Looking at the Tesla Inc stock (NASDAQ: TSLA) on our daily chart, we can clearly see that it is still within an uptrend, while balancing above a couple of upside lines. The price continues to float not only above a medium-term upside support line taken from the low of March 18th, but also above a short-term tentative upwards-moving trendline drawn from the low of June 29th. Even if the stock corrects a bit lower, as long as it stays above those upside lines, there is a good chance TSLA may continue drifting north overall.
A small decline may bring the price back to the 1933 hurdle, or even the 1795 zone, marked by the highest point of July. If TSLA finds support there, or slightly lower, near the aforementioned short-term trendline, new investors could join in and push the stock higher again. The price may easily get back to its current highest point, at 2128, a break of which would place TSLA into uncharted territory. We could only assume then that the next potential resistance area might be somewhere near the 2300 level, or higher.
On the other hand, if the share price suddenly falls below all of the previously-mentioned upside lines and also slides below the 1360 hurdle, marked near the lows of July 24th and August 11th, that may open the door for further declines. Such a move could temporarily keep a few new buyers from jumping into the game. The stock could drift to the 1185 hurdle, or even the 1027 obstacle, marked near the highs of June 10th and 18th. TSLA may stall there for a bit, however, if there are still not enough buyers joining in, that might cause the share price to move even further south, possibly targeting the 937 and 908 levels, marked by the lows of June 25th and 12th respectively.
Apple Inc – Technical Outlook
After the Apple Inc stock (NASDAQ: AAPL) took a dive in the period between the end of February and the beginning of March, it managed to recover and move further north. Not only that, from the beginning of this summer, it kept hitting new all-time highs every month. The share price continues to balance above a medium-term upside support line taken from the low of March 23rd, which sets a positive tone, at least for the near-term outlook. That said, given that in the past month and a half we saw a steep upmove, there is a chance for a small correction lower first, before another potential leg of buying.
As mentioned above, AAPL may go for a slight correction lower towards the 464 hurdle, marked near the highs of August 13th and 17th. If the share price is able to stay above that hurdle, or at least above the aforementioned upside line, that could interest new buyers, who may step in and drive the stock higher again. AAPL might then rise to its all-time high, near the 515 area (reached this week), a break of which would place the stock into the uncharted territory. Such a move could also clear the way to the 550 level, or even higher.
In order to abandon the bullish scenario, at least for a while, we would need to see a clear break of the previously-discussed upside line and a price-drop below the psychological 400 zone, marked near the high of July 13th. That way some new investors may postpone their entries, as such a move might increase the stock’s chances of drifting further south. We will then aim for the lowest point of July, at 357, which could temporarily halt the depreciation. However, if there are still not enough of new buyers, a further decline may bring the AAPL to the 332 hurdle, or even the psychological 300 level, marked by the lows of June 15th and May 15th respectively.
The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.
There are risks involved with trading of cash equities. Past performance is not indicative of future results. You should consider whether you can tolerate such losses before trading. Please read the full Risk Disclosure.
Copyright 2020 JFD Group Ltd.