1 Tesla share or 25 Nikola Stock? Why investors don’t have to choose

Barely a decade in production, Elon Musk You’re here (NASDAQ: TSLA) is already basically the grandfather of electric car stocks, the standard to which newcomers aspire. On the other hand, that of Trevor Milton Nicolas (NASDAQ: NKLA) is the new kid on the block – an electric truck Initial Public Offering which more than doubled its share price in its first week of trading last month.

Even after rising so sharply since its IPO, Nikola’s stock still only costs around $ 56.50 per share, compared to Tesla’s nearly $ 1,400 per share. For the price of fair a share of the neighborhood’s best-known electric car fleet, you could buy 25 fast growing newcomer shares.

So which one to choose? Tesla or Nikola? Do you even have to choose?

With fractional equity investing, you no longer have to worry about the size of the price of an auto stock. Image source: Getty Images.

Good news for small investors

I will not bury the lede here: You not have to choose, at least not anymore.

Maybe you’d rather own stock in profitable Tesla, which has earned nearly $ 265 million combined in its last three reported quarters – but at $ 1,400 a pop, you can’t afford to buy more. a share or two at its current price. . You might think that in order to own a respectable number of stocks you should instead bet on cheaper Nikola – who has yet to sell even a single electric truck, let alone make any big money. profits on its sales, and that is not expected. make profits no earlier than 2025 (according to analysts polled by S&P Global Market Intelligence).

The good news is that now major discount brokers such as Charles Schwab and Fidelity have joined Robin Hood by offering fractional shares, so it’s just as easy to buy for $ 56.50 of a single $ 1,400 Tesla share (or about 0.04 of a Tesla share) as it is to spend the same money to acquire a full share of Nikola.

Fractions make math easier

Fractions are precisely what they look like – fractions, or pieces of whole shares of a stock, sliced ​​up by a broker and sold piecemeal. If you only have $ 5 to invest, Charles Schwab will let you use it to buy part of a stock (around 0.004 Tesla stock, for example). Loyalty is even more flexible, allowing stock purchases in increments as small as 0.001 a share (which in Tesla’s case would only cost you forty dollars).

And of course, if you feel like it, you could spend your money to acquire 1.0 Nikola share – or 1.001, or 1.004, really, any fraction you want.

Why buy fractional shares?

Of course, the question remains why you would want want to to buy fractional shares. First and foremost, the answer is that fractional equity investing allows you to invest in stocks that sell for face value prices high enough that you cannot normally buy a single one. – Tesla is one example, at $ 1,400 a pop. . Warren Buffett popular Berkshire Hathaway (NYSE: BRK.A) an even more extreme example would be, selling for a share price of … $ 268,780. Each.

There are other reasons, however, to consider fractional equity investing. I think maybe the most important reason for newbie investors is that investing in fractional stocks makes it clear that all actions are in fact “fractions”. Nikola, for example, divides his market capitalization of $ 14.5 billion among 360.9 million shares outstanding. Meanwhile, Tesla is splitting its much larger market cap of $ 258 billion into far fewer stocks – 185.5 million shares to be precise. So each “whole” share of Tesla is actually 1 / 185.5 millionth of a company share.

“Half of a Tesla share”, therefore, is only a smaller fraction of the entire company: 1/371 millionth to be precise. By the way, 1 / 25th of a Tesla share (0.04 share, or $ 56.50) can be described as accurately as 1 / 4.6375 billionth of Tesla in its entirety.

When you look at it this way, there really isn’t much of a qualitative difference between buying a whole fraction, or a fraction of a fraction of Tesla. What matters is the quality of the business you buy, no matter what fraction of that business you buy.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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