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Apple Announces Stock Split
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Les Kern said:
You can never lose money when taking a profit. Most definetly not what I would call an idiot. Besides, if you sold at 35, now you can get back in (due to the split) at the same price you sold.
A stock split does nothing, effectively, to those who own the stock. It does:
1. Make it more attractive to investors - both mom and pop as well as pension fund and instituional investors. Mom and pop because the price is no longer $70 per share, but rather $35 per share and "appears" more afforable. For institutional investors it becomes more attractive because it affects the companies P/E (price of the stock to earnings of the company). Apple is sitting at a P/E of 63, high for the sector and why some large investors won't buy. A lower P/E ratio will help, although some still think it will be too high, but at least it will be closer in line to others in the industry.
2. Indicate the company thinks it is doing well. This is like getting insider information because if Jobs is happy with twice the stock, he must have some reason for it - thus, he would hope the price would continue to increase. There does seem to be some "theoretical limit" on wall street where very few stocks trade over $100/share. They do exist (Berkshire Hathawy is one 'A' shares trade at $90,000 a share, and 'B' trade at $3,000/share), but are generally not good for companies who are growing.
{edit: I posted this w/o seeing Bigheadache's Birkshire reference}
macnews said:
You might want to check the math on the P/E ratio. If the price per share is halved, wouldn't the earnings per share be half? that would mean P/E is constant.
Bigheadache said:
For a company with a very high public profile and very dispersed ownership, you can't assume that its investors are rational. The Modigliani-Miller theorem is just that, a theorem, describing a theoretical "ideal" scenario that does not exist in real life.
Bigheadache said:
Warren Buffet refused to split the stock and keep the stock price high specifically to filter out investors that didn't really know what they were doing. The rationale being that if a stock costs tens of thousands of dollars, it will in general be traded only by professional money managers (e.g. mutual/pension fund managers or money managers for rich individuals). Once again proving that all investors are NOT rational, otherwise Buffet wouldn't have had to resort to this.
lmalave said:
Just because the scenario does not exist, doesn't mean that it doesn't apply. I would argue that the US market is amongst the more sophisticated markets and therefore has a high level of efficiency and rational investors. And as for M-M, the scenario does not need to exist for the rules to apply. The main rule about m&m is that corporate structure has no relevance to the value of a business in a tax free environment. Since we have corporate taxes, this means that that there is an optimal corporate structure through the tax shield effect of holding debt. However, unlike having debt, there is no value gain from a stock split, hence it can't add value to the company. M&M is one of the foundations of finance theory.
im not sure if it has already been said, but, if the share prices are lower, then more people will be able to buy. (like me.)
btw: microsoft's share price is around $26, so it may seem that apple is doing better in the market, to first time investers (like me).
btw: microsoft's share price is around $26, so it may seem that apple is doing better in the market, to first time investers (like me).
Uh huh.
Right. Which is why some companies trade at 30:1 price:earnings and others trade at 60:1... because of the news. You couldn't possibly have made my point any better. It's the small investor that is influenced by things like the news and stock splits. It's the professional that takes in all sorts of things like the liquidity ratios, return on assets, et cetera. If you're going to talk about what PROFESSIONALS like to see in a company, at least know what it is they're looking for.
You're right. In the long run, things will even out. But do you really think anyone in this country cares about the long run? If they did, they wouldn't drive SUVs and they would recycle. It's all about the short term, and that's exactly what a stock split is for.
Bigheadache said:
Right. Which is why some companies trade at 30:1 price:earnings and others trade at 60:1... because of the news. You couldn't possibly have made my point any better. It's the small investor that is influenced by things like the news and stock splits. It's the professional that takes in all sorts of things like the liquidity ratios, return on assets, et cetera. If you're going to talk about what PROFESSIONALS like to see in a company, at least know what it is they're looking for.
You're right. In the long run, things will even out. But do you really think anyone in this country cares about the long run? If they did, they wouldn't drive SUVs and they would recycle. It's all about the short term, and that's exactly what a stock split is for.
lmalave said:
Actually thats a pretty BS statement I hope you have something to back that up. There is a gain in not having small investors, you save alot of money in admin costs from printing annual reports, admin, etc. Alot of companies which I analyse that demutalise wind up with large numbers of small investors. In Australia/UK, an example is HHG (I can't think of a US example at the moment) which has millions of shareholders with parcels of under 1000 stocks. They are buying back the small holdings to save admin costs.
Last time Apple did this it was years before Apple shook the image that it's stock had taken a plunge when in reality it was worth the same just spread out over a larger number of stocks. This false image drove Apples stocks down to a near record low. I'm afraid for the near future of Apple's. We'll see if history repeats it's self.
machowiak said:
You are right in a sense, but the window for the gain is very small. If small investors started pushing the price up purely from a stock split, then I can guarantee a number of hedge funds will start shorting the stock.
That's assuming that you would only buy full shares at the current $80ish price; after all, an initial investment of $500 is the same regardless if you buy 1 or 10 shares...
What really helps is this takes the spotlight off of Apple from the doomsayers predicting an implosion at $100 (or whatever the highest predicted price was recently) and signals a positive outlook by the company for performance this year.
Also, with Tiger coming out this year and who knows what other hardware surprises, the stock will appear a lot more appealing to the casual investor wanting to get into AAPL.
What really helps is this takes the spotlight off of Apple from the doomsayers predicting an implosion at $100 (or whatever the highest predicted price was recently) and signals a positive outlook by the company for performance this year.
Also, with Tiger coming out this year and who knows what other hardware surprises, the stock will appear a lot more appealing to the casual investor wanting to get into AAPL.
virus1 said:
I'm new to this stock mess, but to me it seems like my stock will have more room to grow now. Kind of expected a split if it hit 100/share, so I'm pleasantly surprised at this news. So how long till it's back up to 80/share?
Zack
Zack
sinisterdesign said:
With regard to the second point, it is also a signal to the company that it *itself* predicts the stock price will go up, not just "people" at large. Companies often use market signals like this to tip off investors to their strength, without discussing specific details (since the reasons for their optimism may have to do with unannounced products). For example, a company (provided it has a strong reputation for financial prudence already, as Apple does) will sometimes take on a lot of debt just to signal to the market "hey, we're doing so well that we can borrow money to take on huge projects, and pay them off in the near future without breaking a sweat."
So hey, since this IS a rumor site: my interpretation is Apple is signaling to the market not only that iPod and Mac sales will blow away expectations, but that Apple has OTHER products in the pipeline that will shock and awe the computer and consumer electronics markets.
So let's get the rumor mill started: iPhone, iHome (e.g. Mac Mini 2.0), PowerBook G5, Cell processor based Macs. Sky's the limit!
Bigheadache said:
Uh, do a Google search. Buffett himself has spoken and written volumes about his rationale for not splitting the stock. He's basically said in not-so-nice terms that it's to keep out the riff-raff, in language abrasive enought that I found it rather offensive.
If nothing else, this gets Apple some free press on CNBC et al (they're talking about it right now, "stock of the hour"). To individuals, this is big. To pro's, it's a non-event. Slicing the pizza more times doesn't make it bigger.
For those looking to get into apple now, I would recommend you call your broker and have him look into some call options for you (as long and deep in-the-money as you can afford). Limited downside, unlimited upside. It's a spec play, for sure, but this is tech after all.
For those looking to get into apple now, I would recommend you call your broker and have him look into some call options for you (as long and deep in-the-money as you can afford). Limited downside, unlimited upside. It's a spec play, for sure, but this is tech after all.
This has sort of been addressed by others, but I'll give a slightly different explanation. Stock splits mean less now than they used to. Back in the old days (i.e. before the internet brokerages), trading was much more difficult for the small investor. The big brokerage houses often either required investors to buy stocks in round lots of 100 shares or pay extra in commissions to buy odd lots. The theory was that if everybody traded in multiples of 100 shares, it would be easier to match up buys and sells. (None of this "I've got someone looking to buy 17 shares!" and "But the only sells to match up right now are 64 and 79 shares!") So yes, stock splits made a stock more affordable to small investors...a round lot of Apple will drop from $8000 to $4000. But the e-brokerages have made it easy for anyone to buy any number of shares without restrictions. Trading volume has risen, and computers have made it easier to match buys and sells...round lots are no longer generally required. But the psychological effect of a cheaper stock and the impression that the company also thinks the stock will continue to rise are real.
Bigheadache said:
You're right, M&M theorem is about debt/equity ratio not mattering now that I recall. In my forgetfulness I just repeated the other poster's reference to M&M. I guess more generally I was making a comment about the "rational markets" hypothesis. Yes, the U.S. market is relatively sophisticated but that does NOT mean that its investors are rational. Because the percentage of the population invests directly in stock went up so dramatically in the last decade or so, there are simply a lot of investors that only have a vague clue about what they're doing. Therefore you get things like the dot-com bubble which after all was not that long ago!
I mean, yes, rational expectations are the foundation of finance theory, which is why smart investors simply exit the market when it appears that it's behaving irrationally. Because otherwise you're just gambling and may as well put your money into playing online poker.
FriarTuck said:
Look around, man. This is not happening for everyone else. HP's share price dipped enough that the board fired the CEO. Other manufacturers and mature software vendors that have had a solid year made much more marginal imrovements in share price than Apple.
If this were a bubble, I woud expect to see many, MANY more IT companies trading at their 365-day highs.
Apple is doing a lot of things right at the moment: an iPod that continues to dominate and bring Mac buyers into the market, iPod minis that are still sometimes difficult to find, iPod shuffles flying off the rack, Mac mini getting unbelievable traction with first-time Mac buyers, and iLife/iPod bringing people into the market that aren't so much switchers as adders.
There's no bubble.
lmalave said:
That's an interesting interpretation you have. Buffett doesn't like stock splits because he doesn't want his stock traded by short term speculators. He only wants long term investors. The founders of Google actually share his belief so don't expect google to do a stock split either.
Not sure why you are personally offended by this view. I contend his main foes are daytraders and hedge funds who have a short time horizon whereas Buffett is long term value style investor.
i think people are underestimating the number of casual investors...
the casual investor (non-professional) base is growing constantly. apple has become one of the hottest brands in years, period. thus the casual/small investors are getting an ear-full of apple lately. the stock split bringing the cost per share down keeps the doors open for more of these people.
and please, i know alot of 20-30 year olds who are engaged in casual investing. let's kick the mom and pops cliche for all you high-brow 1st class geniuses. even if some of them may be moms and pops...
the casual investor (non-professional) base is growing constantly. apple has become one of the hottest brands in years, period. thus the casual/small investors are getting an ear-full of apple lately. the stock split bringing the cost per share down keeps the doors open for more of these people.
and please, i know alot of 20-30 year olds who are engaged in casual investing. let's kick the mom and pops cliche for all you high-brow 1st class geniuses. even if some of them may be moms and pops...
Porchland said:
The whole American economy is a bubble, thanks to your federal government's inability to create a balanced budget. The worst offenders of course being "fiscal conservatives" like Reagan and Bush.
U.S. National Debt Clock