Prediction: 1 stock split that will be at the forefront of the recovery | news

The stock market has had a tough year. Rising interest rates and rising geopolitical tensions have led to the biggest losses since the Corona crisis in 2020. The broad S&P 500 is a decrease of 16.8% year to date, however Nasdaq 100 is far worse off, a decline of almost 26%.

This puts the technology sector in a real bear market.

Long-term investors can not control when the stock market will recover, but they can control which companies they buy to prepare for better conditions. The key question is this: if things improve (and eventually do), where should investors start?

look to the future

Downward markets are a good opportunity to buy into companies that are developing technologies for the future. The automotive industry, for example, is in the midst of the biggest change in decades, which could see electric cars (EVs) make up the majority of sales in 2050.

This makes the electricity industry a leader Tesla (WKN: A1CX3T) is an enticing purchase right now. The company’s share has fallen 42.5% from the highest level ever despite increased investor enthusiasm due to the recently announced share split.

Tesla is a leader in electric sales and will sell as much as 70% of all electric cars sold in the United States by 2021. Demand for electric vehicles may peak at $ 1 trillion annually by 2030, giving Tesla a huge growth outlook. Interestingly, the autonomous vehicle market could reach $ 2.1 trillion by 2030 (for all vehicle models, not just electric cars). It could accelerate the demand for Tesla vehicles as the company is also a leader in this technology.

In short, the demand for self-driving cars can greatly increase the demand for electric cars.

Tesla is financially strong

Profitability is one of the most important metrics investors are looking for in companies in tough times. Profitable companies can usually survive without having to raise capital, which is difficult to grasp when markets are tough.

Tesla has delivered more than 1.06 million cars to its customers over the past 12 months, generating $ 62.1 billion in revenue. The increase in both these figures in recent years has enabled the company to reach an increasing scale, where fixed costs make up a smaller part of the company’s total revenue, paving the way for increasing profits.

This phenomenon is most evident in Tesla’s gross profit of the automotive industry, which rose to 32.9% in the first quarter of 2022, up from 26.5% in the quarter last year. These results have had a significant impact on the bottom line (profit).

In March, Tesla announced its intention to split its shares. The company has not confirmed the relationship between the split or the effective date, but the move is intended to make the Tesla share more attractive to smaller investors.

The stock is currently trading at around $ 715 per share, which may turn off small investors who lack capital. A 5-to-1 stock split (as an example only) would quadruple the number of shares outstanding while reducing Tesla to $ 143 per share. share – making the stock more accessible.

While stock splits are generally well received by investors, they are purely cosmetic and add no inherent value to the business.

For true long-term growth, it’s important to stay focused on Tesla’s business, which continues to expand. The company has just opened two new gig factories in Berlin and Austin, Texas, which could increase the total production capacity to over 2 million cars a year.

While cars are the main driver of Tesla’s business, the company also creates value in other areas such as insurance, workshops and merchandise.

But solar energy production for homes and battery storage can also play a key role in the company’s future growth. In the first quarter of 2022, inventory implementation increased by 90%, and Tesla is increasing production at a dedicated facility to keep up with demand. Solar energy consumption fell this quarter due to supply constraints, but is still up for the year.

The best gains are likely to come in the long run. However, given Tesla’s explosive growth and popularity among consumers and investors, it can be assumed that the Tesla share will lead the market recovery.

The article Prediction: 1 Stock Split That Will Be at the Forefront of the Recovery article first appeared on The Motley Fool Germany.

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Anthony di Pizio does not own any of the listed shares. The Motley Fool owns shares in and recommends Tesla. The Motley Fool recommends Brookfield Asset Management. This article was published d 20/5/2022 at Fool.com and has been translated for our German readers.

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