Apple Stock Split Coming?

[MacRumors]

According to LoopRumors, Apple is seriously considering another stock split, which would drop the price of its stock while proportionally increasing the amount of shares.

At the recent Morgan Stanley Technology Conference, Apple CFO Peter Oppenheimer simply stated that he didn't "have anything to announce at this time" when questioned as to whether Apple would split its stock.

Investors have recently been bullish on Apple's stock, with one analyst most recently speculating that Apple's shares could once again double in value by 2010.

Apple last split its stock at a 2:1 ratio in February 2005.

 

[mattscott306]

That'd make me really happy. I wanna jump on apple stock, but I didn't wanna get a low proportion of shares. Good news, good news.

 

[MacNut]

So buy now and wait or buy after the split?

 

[WildCowboy]

That'd make me really happy. I wanna jump on apple stock, but I didn't wanna get a low proportion of shares. Good news, good news.

It doesn't make a difference...your proportion is the same whether you buy before or after the split.

 

[eb6]

It has been split in the past and has come back up to the presplit price, therefore doubling your money, I say buy now. But I'm no stock genius.

I always read where people say splits don't matter, which they don't right away, but long term it's a good thing.

 

[thejadedmonkey]

So the only thing that this would do is make it cheeper to buy a (singular) share?

 

[eb6]

So the only thing that this would do is make it cheeper to buy a (singular) share?

But a higher supply (twice as many shares) makes for a lower demand which makes for a lower price longer. I think.

 

[ChrisA]

Isn't this kind of like making the big decision of if to carry two $10 bills or one $20 in your wallet or maybe "taking the radical approach" and carrying four $5 bills.

 

[longofest]

So the only thing that this would do is make it cheeper to buy a (singular) share?

Generally, splits tend to spur trading of a stock. While stock might dip slightly after the split, the split in general tends to spur an increase in value overall.

 

[eb6]

I think it split sometime in 2005 at $80 or so. Therefore your 10 shares at 80$ would now be 20 at about $90 (todays price) with another split 40 at possible $80 or $90 again in a few years. It's a good thing.

 

[WildCowboy]

So the only thing that this would do is make it cheeper to buy a (singular) share?

Basically, yes.

The vast majority of the time, splits accomplish very little in and of themselves. It used to be (back in the day when things weren't almost entirely electronic) that trading in round lots of 100 shares was preferred. Buying or selling something other than that (or a multiple of that), called an odd lot, usually incurred an extra premium on the commission because it required extra work on the part of the broker to match buyers and sellers. Thus, for people wanting to buy 100 shares, stock splits made it half as expensive to buy a stock. This meant that more people could buy the stock, and the price would go up.

But since round and odd lots trade under the same commissions these days, this incentive to split stocks is gone. (There are stocks like Berkshire Hathaway A where the share price is so high that a lot of people can't even afford to buy a single share, so a split would benefit there. Hence the creation of class B stock, which is still expensive. But those examples are very few and far between.)

The biggest positive to come from stock splits today is that it generally signals confidence in the company's future on the part of the management. If the management had concerns that the stock price might drop a significant amount, they probably wouldn't split it. Similarly, it possibly signals a feeling that the stock will continue to rise. But even this signals isn't universally accepted. Management does have inside information that could give them more insight than the average investor into the future of the stock, but they don't know all. Stock prices are notoriously fickle.

 

[DMann]

Let's hope for a split

It doesn't make a difference...your proportion is the same whether you buy before or after the split.

True, however, if a split brings the price down significantly (by half) you'll own twice as many shares, and therefore earn twice as much while the stock price rises: $46,000 will buy you 1000 shares after the split, instead of 500, (and if you own 500 shares already, you'll now own 1000) which will make you $1000 instead of $500 each time the stock climbs $1. Let's hope for a split soon, which will mean more leverage for us all

 

[WildCowboy]

True, however, if a split brings the price down significantly (by half) you'll own twice as many shares, and therefore make twice as much the stock rises: $46,000 will buy you 1000 shares instead of 500, which will make you
$1000 each time the stock climbs $1. Let's hope for a split soon, which will mean more leverage for us all

True, but percentage-wise a $1 rise post-split is the same as a $2 rise pre-split. Whatever the news was that caused the stock to go up $1, it would have caused the stock to go up $2 had the stock not split. It doesn't matter.

 

[DMann]

Basically, yes.

The vast majority of the time, splits accomplish very little in and of themselves. It used to be (back in the day when things weren't almost entirely electronic) that trading in round lots of 100 shares was preferred. Buying or selling something other than that (or a multiple of that), called an odd lot, usually incurred an extra premium on the commission because it required extra work on the part of the broker to match buyers and sellers. Thus, for people wanting to buy 100 shares, stock splits made it half as expensive to buy a stock. This meant that more people could buy the stock, and the price would go up.

But since round and odd lots trade under the same commissions these days, this incentive to split stocks is gone. (There are stocks like Berkshire Hathaway A where the share price is so high that a lot of people can't even afford to buy a single share, so a split would benefit there. Hence the creation of class B stock, which is still expensive. But those examples are very few and far between.)

The biggest positive to come from stock splits today is that it generally signals confidence in the company's future on the part of the management. If the management had concerns that the stock price might drop a significant amount, they probably wouldn't split it. Similarly, it possibly signals a feeling that the stock will continue to rise. But even this signals isn't universally accepted. Management does have inside information that could give them more insight than the average investor into the future of the stock, but they don't know all. Stock prices are notoriously fickle.

However, if the same amount of money will now buy you twice as many shares, you will earn twice as much profit as the stock rises. This makes a GREAT incentive for a company to split a stock, making it a much more attractive investment by giving more leverage to stockholders.

True, but percentage-wise a $1 rise post-split is the same as a $2 rise pre-split. Whatever the news was that caused the stock to go up $1, it would have caused the stock to go up $2 had the stock not split. It doesn't matter.

True, but not all of us can afford to purchase a large enough quantity of Google stocks to make a decent profit. At $46 per share, more small investors can afford to buy a larger portion of shares, which does equate to more leverage.

 

[WildCowboy]

However, if the same amount of money will now buy you twice as many shares, you will earn twice as much profit as the stock rises. This makes a GREAT incentive for a company to split a stock, making it a much more attractive investment by giving more leverage to stockholders.

No, you earn the same amount because the stock only rises half as much as it would have.

To used a magnified example, if AAPL splits 100:1, each share becomes worth about 91 cents. Yes, if the share price goes up by $1, you've made 100x as much money as you would have if the stock had not split. But in order to get the $1 increase on a 91 cent basis, you've had to more than double the market cap of the stock...no small feat for a stable company like Apple. It would be exactly the same as AAPL not splitting and it's share price going up by $100.

True, but not all of us can afford to purchase a large enough quantity of Google stocks to make a decent profit. At $46 per share, more small investors can afford to buy a larger portion of shares, which does equate to more leverage.

I'd argue that if you can't afford a single share of Google at $447, you probably shouldn't be buying the stock because you're not investing enough in the stock to offset the commissions you'll have to pay (unless the stock hits it really big). But yes, Google is one of those stocks that could probably benefit a bit from a split. But not Apple at $91.

 

[Peel]

I'd been expecting this to happen. The Apple Board haven't typically liked the share price to get above $100. The question is what type of split will it be? 2:1? 3:2?

 

[DMann]

No, you earn the same amount because the stock only rises half as much as it would have.

To used a magnified example, if AAPL splits 100:1, each share becomes worth about 91 cents. Yes, if the share price goes up by $1, you've made 100x as much money as you would have if the stock had not split. But in order to get the $1 increase on a 91 cent basis, you've had to more than double the market cap of the stock...no small feat for a stable company like Apple. It would be exactly the same as AAPL not splitting and it's share price going up by $100.

Very true, but unfortunately, Market Analysts have a HUGE influnece on the psychology of stock holders. When they claim that Apple stocks are over valued at $91, people dump the stock. When they claim that $46 is a fair value, people buy. I bought 1000 shares in March 2005 and sold at $89. After the split, I'll buy more, since many investors feel $91 is over valued, it's not likely too shoot up as rapidly from where we are now. Apple is a special case when it comes to stocks.

No, you earn the same amount because the stock only rises half as much as it would have.

To used a magnified example, if AAPL splits 100:1, each share becomes worth about 91 cents. Yes, if the share price goes up by $1, you've made 100x as much money as you would have if the stock had not split. But in order to get the $1 increase on a 91 cent basis, you've had to more than double the market cap of the stock...no small feat for a stable company like Apple. It would be exactly the same as AAPL not splitting and it's share price going up by $100.



I'd argue that if you can't afford a single share of Google at $447, you probably shouldn't be buying the stock because you're not investing enough in the stock to offset the commissions you'll have to pay (unless the stock hits it really big). But yes, Google is one of those stocks that could probably benefit a bit from a split. But not Apple at $91.

We'll at $7 a trade with Ameritrade, I'd hardly call that a commission difficult to offset.

 

[Grimace]

it's all a mental thing -- the value doesn't change.

Investors are more hesitant to buy 1 share of Google at ~$450/share than if they were to buy 10 shares at $45/share. Same cost, differernt sense of ownership.

At the same time, Berkshire Hathaway shares are $3600/share. Warren Buffett has done well and doesn't care about splits. If you want in, you bring your wallet.

 

[Clive At Five]

Let me first say that Loop Rumors doesn't usually have the best credibility, but also let me say that a stock split would be a convenient time to buy for me. I don't have a whole lot of money to pour into stocks at this point. Buying 10-20 shares seems pointless, but being able to buy 20 - 40 shares seems a lot more economical. I know it's the same price/value, but it's a huge psycological difference.

-Clive

 

[WildCowboy]

Very true, but unfortunately, Market Analysts have a HUGE influnece on the psychology of stock holders. When they claim that Apple stocks are over valued at $91, people dump the stock. When they claim that $46 is a fair value, people buy. I bought 1000 shares in March 2005 and sold at $89. After the split, I'll buy more, since many investors feel $91 is over valued, it's not likely too shoot up as rapidly from where we are now. Apple is a special case when it comes to stocks.

I don't really buy all of that, but I'll agree that analysts have a significant impact. I just don't see too many analysts saying that's its overvalued. In fact, they're upping their targets in recent weeks. Analysts are also smart enough to know that $92 pre-split and $46 post-2:1-split are exactly the same.

I know I'm sounding like I'm poo-poohing stock splits, but I'm not. I'm just saying that they mean less than they used to. I'm happy for a split, and there are plenty of reasons to view it as a good thing (management optimism - the big one, decreasing the bid/ask spread - smaller one, etc.).

We'll at $7 a trade with Ameritrade, I'd hardly call that a commission difficult to offset.

Agreed...but it is 3%. The time required to recoup that in a slow-growing, but stable, blue-chip stock can be significant.

 

[zombitronic]

$5 a trade at thinkorswim. Well, $5 to buy, $5 to sell.

 

[mattscott306]

It doesn't make a difference...your proportion is the same whether you buy before or after the split.

Good point, just something about being able to buy 100 shares rather then 50 shares seems better to me.

Strange.

 

[TheManOfSilver]

it's all a mental thing -- the value doesn't change.

Investors are more hesitant to buy 1 share of Google at ~$450/share than if they were to buy 10 shares at $45/share. Same cost, differernt sense of ownership.

At the same time, Berkshire Hathaway shares are $3600/share. Warren Buffett has done well and doesn't care about splits. If you want in, you bring your wallet.

That's partially true. The difference is not in whether or not "investors" on the whole will or won't buy a certain stock at a certain share price, but rather which investors will. Obviously more large-portfolio investors are buying shares in Google, and very-large portfolio and corporate investors in Berkshire Hathaway.

For Apple, a move to split the stock now would only serve to attract more investing activity amongst small-portfolio investors. After all, a $1000 investment will garner the same portion of the company and the same total share of the profit whether it is pre- or post- split. But if you only have $500 to invest, there's a perceived greater value in being able to buy 10 shares instead of 5.

 

[IJ Reilly]

Isn't this kind of like making the big decision of if to carry two $10 bills or one $20 in your wallet or maybe "taking the radical approach" and carrying four $5 bills.

A great analogy. I know some people feel richer carrying around four $5 bills instead of one $20 bill. For them, I have a wonderful offer: 19 singles in exchange for one 20. That way, we'll both feel richer!

 

[Sun Baked]

Generally, splits tend to spur trading of a stock. While stock might dip slightly after the split, the split in general tends to spur an increase in value overall.

When the stock is going up, this help make the stock "more affordable" -- but when the stock go way down, the massive amount of stock can possibly put a company at risk of delisting, or having to resort to reverse-splits.

Personally, I like to see the higher stock price than billions of shares in the marketplace.