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Why Tesla’s [TSLA] Stock Split Matters

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August 31st, 2020 by


Note: Nothing below is investment advice.

If you’ve been following the stock price lately, you might be forgiven if you think Tesla has had a huge cresting of news lately. In fact, on the day my previous article was published, Tesla stock closed at $1500.84. Today, as I write this, the stock price is currently at $2,213.40 per share, right before the split occurs.

While I suppose it could be argued, I feel like the biggest news affecting the price of the stock between those two dates is the upcoming stock split that will be completed Monday, August 31, and that’s what I want to dive into here. Stock splits shouldn’t matter, but I think the market is getting this one right, because Tesla presents a unique situation. So, let’s dive in!

Why Stock Splits Shouldn’t Matter

Before understanding the difference between Tesla and regular stock splits, let’s make sure we are all on the same page about what a stock split does.

A stock split is exactly what it says it is — the company takes a share and splits that into a predetermined number of shares, which are all worth 1/X of the value of the original share (with X being the number of shares they are split into).

Stocks can also reverse split, where a company will combine multiple shares into one, with the new share price being equal to the price of the shares that were combined. Groupon is an example of a company that did this recently, performing a reverse split of 1-for-20, meaning that if you had owned one share — as I happen to, thanks to opening a Robinhood account — you (or I) now own 1/20th of a share.

When these splits occur, nothing else really changes. The value of the company remains the same. Now you just have more shares, or in the case of a reverse split, fewer shares, that combine for the same total amount of cash value. Earnings per share calculations change based on the new amounts, and can be confusing when you are looking at older articles about profit that don’t automatically update, but a stock split doesn’t change any fundamentals about the company. For instance, as before the split, Tesla will still have over $500 million of warranty repair reserves that it could immediately recognize as revenue.

The point is that stock splits really don’t change anything.

I feel it’s also worth pointing out that stock splits are often done by companies that have been gaining in value, while reverse splits tend to occur with companies that are in trouble. Reverse stock splits can be used to try to keep their shares listed on exchanges that have minimum share price rules, as that is important for getting equity investors to actually purchase them. A cynical person could say it also tricks investors into thinking the company has had a boost. I was sort of excited to discover the stock tracker program I use suddenly showed my single share of Groupon way up, and I was wondering what happened. Maybe I should start caring about it.

But standard stock splits have mostly fallen out of favor. The main reason for them is to to make shares seem more affordable to small investors. Today, with a number of the brokerages that target small investors, like Robinhood, offering the ability to purchase fractional shares — or the ability to buy as little as 1/1,000,000th of a share — a number of places have argued that stock splits weren’t interesting any more, and they were mostly for investors to see share prices soaring into the stratosphere.

The market response to Tesla’s announcement has blown a bit of a hole in that argument, and I think there is a really good reason for it.

What’s The Benefit?

While stock splits don’t affect overall company valuation, earnings, losses, or anything else, there is one thing that they do impact — and that’s the ability to vote your shares. Many of the companies that offer fractional shares do not allow fractional shareholders to vote their shares. Robinhood is one of the few that I could find that does allow you to vote, and collates those votes.

In the case of most companies, the ability to vote your shares probably isn’t a big deal. Institutional investors and “retail” investors often see Tesla in wildly different ways. Many of us who started diving into Tesla expected to find some positive and negative information. Last October, I wrote an article about why I originally made a small, 8 share investment into Tesla — I felt that it was a risky stock but one that had potential to increase astronomically in the future. That date in October, I identified 11 points where I saw Tesla doing significantly better than most analyses were showing, and as I’ve continued my own analyses, I couldn’t find evidence where I didn’t believe that the company would execute and grow quickly.

While it seems like Wall Street analysts are starting to understand the bull thesis on Tesla — although, I think a lot of them upgrading their price targets is due to herding (worth a future article of it’s own sometime) — you can still find incredibly silly arguments regularly pushed and promoted. There are still many analysts pushing the argument that Tesla is just a car company. There are still articles written claiming that demand doesn’t exist.

If you’ve dug for your own evidence, those arguments fall apart with actual research. Most of the articles I’ve written are me looking at bear theses to see if they’re valid. With companies I invest in, the bears often have decent points. Tesla is the one company I’ve ever held that I haven’t found a single bear argument with which I agree.

This has everything to do with the stock. Shareholders can force companies to allow shareholders to vote on resolutions that can force companies to change the direction of the company or how it’s managed. Carl Icahn and Dan Loeb are two investors known for that.

It isn’t unrealistic to think that Tesla could have an activist shareholder force a vote on something that might drastically change the direction of the company. In the past earnings call, Elon Musk said, “What bugs me the most right now is that our cars are not affordable enough.” Imagine if an activist investor forced Tesla to hold a proxy vote on if the company should reduce the price of its vehicles or make more money. It isn’t hard to envision a world in which the institutions who own the stock but don’t seem to understand it decide to vote for profits over price.

While I think that Tesla would easily survive such a vote — after all, Elon Musk owns around 20% of the outstanding Tesla shares — the more retail investors have access to voting shares, the more likely the company is to be insulated from changes those Wall Street types may think would make the company better.

Conclusion

I was ecstatic when I heard that Tesla would be splitting its shares, for exactly this reason. With how far off Wall Street investors have been about Tesla so far, I feel any potential reduction in the influence of institutional investors who may be swayed by an activist who attempts to have a proxy vote to change the company is a good thing.

While there are no hard numbers out there, it’s believed around 75% of Tesla is owned by institutional investors and Tesla executives. If retail investors make up the missing 25%, ensuring as many of those investors as possible can vote means that, when combined with Tesla executives, the company should be able to continue to execute it’s strategy exactly how it best sees fit, without outside interference.

And that, to me, is worth a premium.

Disclaimer

I am a Tesla [NASDAQ:TSLA] shareholder who has purchased shares within the preceding 12 months. Research I do for articles, including this article, may compel me to increase or decrease stock positions. However, I will not do so within 48 hours after any article is published in which I discuss matters that I feel may materially affect stock price. I do not believe that my voice could or should influence stock price by itself, and I strongly caution anyone against using my work as your sole data point to choose to invest or divest in any company. My articles are my opinion, which was formulated using research based on publicly available data. However, my research or conclusions may be incorrect.



About the Author

A businessman first, the Frugal Moogal looks at EVs from the perspective of a business. Having worked in multiple industries and in roles that managed significant money, he believes that the way to convince people that the EV revolution is here is by looking at the vehicles like a business would.

 

 

Source:- CleanTechnica

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CMHC saw 'moderate' risk of overvalued markets, stands by price forecast – Yahoo Canada Finance

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The Canadian Mortgage Housing Corporation (CMHC) saw ‘moderate’ evidence of an overvalued housing market in the Spring of 2020.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The organization’s Housing Market Assessment report released Monday says real estate imbalances (whether the market skewed towards a buyer or seller’s market) in Canada had eased by the end of 2019.” data-reactid=”13″>The organization’s Housing Market Assessment report released Monday says real estate imbalances (whether the market skewed towards a buyer or seller’s market) in Canada had eased by the end of 2019.

In the second quarter, the Vancouver market sales-to-new-listings ratio (SNLR) sunk from the mid-60 per cent range to mid-40 per cent, swinging it closer to a buyer’s market. For Toronto, the ratio fell to 55 per cent in the second quarter, but only because COVID-19 lockdowns temporarily hit the brakes on transactions. At the beginning of the third quarter, the market began to rebound with pent-up demand bringing the ratio back closer to 65 per cent.

However, the pandemic led to rising unemployment and reduced hours worked, which lowered income in most regions. Prices rose more than expected in areas like eastern Canada, Ottawa, Montréal, Moncton, and Halifax, considering factors like lower population growth, rising unemployment, lower income, and lower mortgage rates.

Sales fell slightly more than new listings, which tumbled at a record pace. This tipped housing closer to a balanced market, with a drop in the sales-to-new-listing ratio to 61.9 per cent from 65.8 per cent in 2019. The shock of the pandemic shutting down open houses and stalling transactions caused the average house price to fall. However, the data do not reflect the federal government supports or the record-breaking house prices the country has seen in recent months.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="August may have set another record for house prices, though the Crown corporation stands by its nine to 18 per cent house price decline forecast in May. “We stand by our forecast in the sense that I think there remain a lot of conditions in the housing market and the economy, for that matter,” said CMHC chief economist Bob Dugan over the report’s briefing call, adding that there are risks with provinces lifting their lockdowns. “There are risks related to the different mortgages that are in place right now and for the risks to come upon them going forward. So I don’t think we’re out of the woods, yet.”” data-reactid=”17″>August may have set another record for house prices, though the Crown corporation stands by its nine to 18 per cent house price decline forecast in May. “We stand by our forecast in the sense that I think there remain a lot of conditions in the housing market and the economy, for that matter,” said CMHC chief economist Bob Dugan over the report’s briefing call, adding that there are risks with provinces lifting their lockdowns. “There are risks related to the different mortgages that are in place right now and for the risks to come upon them going forward. So I don’t think we’re out of the woods, yet.”

The simultaneous occurrence of [social distancing measures and employment losses] caused the number of transactions and the number of new listings entering the market to fall at a record pace. With sales falling by slightly more than new listings, the sales-to-new-listings ratio dropped to 61.9 per cent from a recent high of 65.8 per cent in the fourth quarter of 2019 (Figure 1). SOURCE: CMHC

Consistent with the prior tightening of the resale market, the inflation-adjusted MLS national average price experienced four consecutive quarters of growth through to the first quarter of 2020. By the second quarter of 2020, following the sudden shock to housing market fundamentals and two quarterly declines of the sales-to-new-listings ratio, the real average price had fallen. Consequently, evidence of price acceleration also remains low. SOURCE: CMHC Consistent with the prior tightening of the resale market, the inflation-adjusted MLS national average price experienced four consecutive quarters of growth through to the first quarter of 2020. By the second quarter of 2020, following the sudden shock to housing market fundamentals and two quarterly declines of the sales-to-new-listings ratio, the real average price had fallen. Consequently, evidence of price acceleration also remains low. SOURCE: CMHC

Overheating in Canada’s Major Markets

The company’s estimates for overvaluation in Toronto and Vancouver picked up as both cities saw a boost in house prices in the second quarter despite the economic fallout from the pandemic.

Heading into the second quarter, the CMHC's concerns around overheating and price acceleration eased. However, the overall assessment purports that the region may have moderate degrees of vulnerability. SOURCE: CMHCHeading into the second quarter, the CMHC's concerns around overheating and price acceleration eased. However, the overall assessment purports that the region may have moderate degrees of vulnerability. SOURCE: CMHC

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Is a paper towel shortage nigh? Major Canadian manufacturer warns inventory 'very tight' – CTV News

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The head of Canada’s largest manufacturer of tissue products says he’s concerned about the industry’s supply of paper towels ahead of a potential second wave of COVID-19.

Kruger Products CEO Dino Bianco said demand for paper towels has soared as people stay at home and clean more frequently.

“Toilet paper was the highlight of the COVID stay-at-home mandates but now we’re seeing the big use of paper towels,” he said in an interview.

“COVID doesn’t make you go to the bathroom more, but it does make you clean more.”

Bianco said the industry’s paper towel inventory is “very tight” across North America, despite efforts to build up supply.

“Paper towel is the big watch out for us,” he added. “We’re trying to build our inventory but we’re very tight.”

Kruger, which makes SpongeTowels paper towels, isn’t the only tissue manufacturer seeing continued strong paper towel sales.

Geraldine Huse, president of Procter & Gamble Canada, said demand for the company’s tissue products, including Charmin toilet paper and Bounty paper towels, increased significantly in mid-March.

But while toilet paper consumption has returned to normal levels, she said paper towel sales continue to outpace pre-COVID levels.

“Consumer demand for paper towels remains high across Canada as consumers are staying at home more and their cleaning and hygiene habits have increased,” Huse said in an emailed statement.

She said the company expects strong sales of cleaning products, including its paper towel, home cleaners and dishwashing liquid, to continue in the coming months and that P&G is “producing and shipping 24/7 to meet demands.”

Tim Baade, senior vice-president and general manager of Irving Consumer Products, agreed that demand for toilet paper has started to level off while paper towel usage remains strong.

“Demand for our towel has remained high,” he said in an emailed statement. “Bath demand is still up from pre-COVID-19 levels, but lower than its peak earlier this year.”

Baade said the company, which makes Royale paper towel and other brands under store “house brands” and private labels, continues to maximize its production to help mitigate any supply gaps.

Meanwhile, Kruger is pushing to open its new plant in Sherbrooke, Que., to add more capacity in Canada, Bianco said.

Initially slated to open in February 2021, he said the company is trying to get the factory up and running faster. Some machines started over the summer, while more are set to come online next month.

Bianco said the plant will increase the company’s paper towel and toilet paper manufacturing capacity by 20 per cent.

For now, Kruger has cut back on its stock keeping units — or SKUs — to maximize its production of key products.

At the height of the pandemic, the company slashed the number of products it makes in half to about 90, down from 180 key products. The company is back up to about 110 items, Bianco said.

There will be plenty of the company’s Cashmere brand toilet paper, for example, but the recycled sub-brand EnviroCare will be harder to come by.

That’s in part because it’s less popular, he said, but also because of issues with the supply of the raw product — recycled paper.

“We use recycled paper that comes from white paper used in offices,” Bianco said. “That market has dried up because people aren’t in offices printing, so it’s hard to get the recycled fibers used to produced recycled tissue.”

This report by The Canadian Press was first published Sept. 21, 2020.

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Vancouver Coastal Health shirks B.C.'s policy to publish COVID-19 school exposure events – CBC.ca

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Now that class is back in session, new cases of COVID-19 have begun to pop up at schools across the province.

To find out which schools have reported exposure events, all you have to do is go to your region’s public health website, where a list is regularly updated.

Unless you live in the Vancouver Coastal Health region.

That’s because Vancouver Coastal Health has not been following the same policy for notifying the public when there’s a COVID-19 exposure event within a school. Vancouver Coastal Health covers Vancouver, Richmond, the North Shore and Coast Garibaldi, Sea-to-Sky, Sunshine Coast, Powell River, Bella Bella and Bella Coola.

The other health authorities — Interior Health, Island Health, Fraser Health and Northern Health — have all stated they will update their online school exposures list with information on possible exposures within schools.

“We are providing this information so school staff, students and parents can be assured that public health is following up in their community and exposure risks are being mitigated to the best of our ability,” the four authorities say on their individual websites.

Vancouver Coastal Health has the same information written on its school exposures page, but it is currently showing no exposure events, even though it confirmed to CBC News it has seen cases in schools.

“We are aware of and will continue to see cases of COVID-19 occurring in staff and students,” the authority wrote Sunday in an email.

Provincewide approach

At her Monday COVID-19 health update, Provincial Health Officer Dr. Bonnie Henry said there is one provincewide publication approach for COVID-19 exposures in the province. However, she believes there has been a miscommunication with her colleagues at Vancouver Coastal Health.

“We expect that Vancouver Coastal would adhere to what everyone else is doing, as well as our provincial standard,” she said.

Cases in schools

Since students returned to classrooms about two weeks ago, there have been at least 20 COVID-19 exposures reported by health authorities and schools.

There have also been unconfirmed reports of cases at two West Vancouver schools, one Vancouver school and one Richmond school, all within the Vancouver Coastal Health region — but you won’t find that information listed on their website.

A physical distancing sign is pictured outside of Hastings Elementary prior to the first day of school Vancouver, British Columbia on Wednesday, September 2, 2020. (Ben Nelms/CBC)

Vancouver Coastal Health said in a statement that when it comes to confirmed cases in schools or other settings, it notifies all people exposed in the most direct manner.

“This is more effective than public notifications and respects patient confidentiality,” it wrote in a statement.

“When we aren’t able to directly reach all people who may have been exposed in a timely manner, we use other means, including a letter or public notification.”

Vancouver district PAC calls for transparency

But that’s not sitting right with all families in the Vancouver Coastal Health region.

“I want to see it posted, sooner rather than later,” said Gordon Lau, chair of the Vancouver District Parent Advisory Council.

Lau, who has two children in Vancouver’s public education system, says he has no doubt that VCH is properly notifying everyone directly exposed. But he says it’s important that the information is posted to help build public trust in the health authority.

As well, he says it allows parents to stay informed.

“By allowing parents to see what is happening at the district level, we can better see what’s happening in the big picture and assess for our own families what the level of risk is in our community,” he said.

“When we see the absence of information on VCH’s website it is honestly disappointing and we are unable to do that assessment and understand exactly what is happening in our schools and we’re unable to make the choices we need to make for our families.”

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