Tesla Inc (NASDAQ: TSLA) appears to be following the trend of Apple and is partaking in a 5-for-1 split. The resulting price will trade at one-fifth the price and shareholders before the split get five times the shares. The recent announcement appears to buck a rather long trend of companies not splitting their shares. Is the split announcement a signal to buy? Insider trading suggests it may be a good time to take profits in Tesla.
The announcement from Apple Inc (NASDAQ: AAPL) that they were doing a 4-for-1 stock split was understandable as a Dow Jones Industrial Average component. The price-weighted index has issues when one company is too large. When Tesla announced their split, it begs the question of why now? When brokers are increasingly allowing fractional shares, there doesn’t seem to be the same advantage of having a share price that the average investor can buy. However, the announcement was successful at goosing the share price over 7% higher afterhours.
Looking at insider trading for Tesla since July 1, the amount of selling has continued to pick up with many insiders selling a significant percentage of their holdings. For example, Robyn Denholm, a director, sold 26,167 shares for a cumulative value of $38.94 million. The transaction left the director with only 1,000 shares. With only 0.28% insider ownership, it does add important perspective that management isn’t very aligned with the company’s goals. However, it is an indication that the valuation is compelling as a holder to sell shares.
Action to Take: With the split occurring on August 31, there is a chance for a short-term bullish run in the share price and a possible retest of the July highs near $1700 t0 $1800. At that point, the price may seek to retrace the bullish trend since March and may be a good time to take profits into strength.