Since late May$Tesla (TSLA.US)$Its market capitalization has risen by $280 billion. Recently, Tesla, Inc. split shares again for the second time in many years, hoping to push the stock price higher, but the result may not be in line with his expectations. The split will take effect when U. S. stocks open on Thursday, Aug. 25.

The myth of skyrocketing is difficult to reproduce.

When Tesla, Inc. split its shares in 2020, driven by many factors, its share price rose sevenfold that year.

Alphabet, the parent company of Amazon.Com Inc and Alphabet Inc-CL C, has also split shares in recent months, and subsequent share price performance suggests that this once-reliable strategy to boost valuations is losing its effect in a bear market. From the day the split was announced to take effect, Amazon.Com Inc's share price fell more than 10 per cent, while Alphabet fell 21 per cent.

Greg Martin, managing director and co-founder of Rainmaker Securities, said: "in a bull market in which retail investors pour into the stock market, the trick of split shares is more prevalent. But in a bear market, retail investors tend to be less involved, and institutional participants are never stupid enough to buy a stock as a result of a split. "

Tesla, Inc. 's share price has fallen 12 per cent since the split was announced in late March, a far cry from the 60 per cent surge in 2020 from the announcement of the split to the trading day before it took effect.

Under the threat of recession, riskier growth stocks such as Tesla, Inc. were the first to be affected by deteriorating sentiment in the stock market this year. The stock is down 16 per cent so far this year and is likely to fall for the first time since 2016. Since hitting an one-year low on May 24, Tesla, Inc. closed 42 per cent higher on Wednesday. But the stock's rebound was thwarted in August as retail enthusiasm waned.

According to Vanda Research, investors tend to buy stocks significantly less in the weeks after the break-up takes effect. The company believes that Tesla, Inc. will encounter the same situation this time.

High valuation

In addition to investor sentiment, Tesla, Inc. 's high valuation may also make it harder to rise. It now trades at about 57 times forward earnings, compared with 17 times for the S & P 500. Analysts' average target price for the stock means it will fall by about 3% over the next 12 months.

Catherine Faddis, chief investment officer of Grace Capital, said that Tesla, Inc. 's current valuation includes many factors such as hope, speculation, hero worship and so on. If investors buy Tesla, Inc. immediately, they believe the company's revenue will reach $800 billion in 10 years' time, almost 10 times what is expected this year.

Tesla, Inc. also faces a series of challenges, such as persistent supply chain shortages in the automotive industry, high raw material costs and lawsuits between Musk and Twitter. All of them are likely to hinder the rise of share prices after the split.

However, if investor sentiment improves again, Tesla, Inc. 's super popularity among retail investors will ensure that it will continue to rise in the short term.

Rainmaker Securities's Martin said that the strong pursuit of retail investors had a huge impact on the stock price after the split. In addition, Tesla, Inc. 's break-up timing may be lucky, because the US climate investment bill will create a lot of new demand for the electric vehicle industry, and Tesla, Inc. is the industry leader.

After Tesla, Inc. 's split, only eight stocks in the NASDAQ will have a share price of more than $500. After this year's sell-off and a series of spin-offs, the number of companies with a share price of more than $500 has halved since the start of the year.