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The case for an Apple stock split redux
Just about a year ago I wrote a post explaining all the hoopla over an expected AAPL stock split which never happened. At that point AAPL shares were trading at $202.86 and many felt that it was just too expensive for most small investors to buy. Last week, Apple closed at $348.14 after a few weeks of a roller coaster ride taking the stock down from a 52 week high of $364.90. No one really knows why the fairly quick drop happened. Rumors covered everything from the health of Steve Jobs and the question of a succession plan, to delays of the iPhone 5 and the iPad 2; but the fact of the matter is that an annual increase in price of around $145 ain't chopped liver. The vast majority of AAPL stockholders are investment firms, with the little guy being mostly left out due to the high stock price. It's emotionally unsatisfying to buy a handful of shares, and with only five or six shares in your portfolio the profit potential is decreased. That's mostly emotions talking, but the market is strongly influenced by emotions like fear, excitement and greed. So what would happen if Apple decided to split its stock anywhere from two to one, up to a four to one split? AAPL has split two for one three times, in 1987, 2000, and 2005 -- but it hasn't happened in the last six years. Philip Elmer-DeWitt writing for Fortune's Apple 2.0 posed an argument asking if the time is right. He made a reasoned case both for and against splitting.
CNBC: Apple should be world's most valuable company
Apple's latest earnings report has been available for three weeks, and analysts are chiming in with their 2011 assessment of the Cupertino company. Though Apple's stock dipped slightly after Steve Jobs announced another medical leave of absence, the release of the Verizon iPhone and Apple's 2011 forecast is causing the stock to rebound to an all-time high. Currently, the stock is trading at US$356, which is more than $160 higher than the 52-week low. Apple's stock is trending well and will continue to climb upward according to several analysts who have placed price targets as high as $550, though most are projecting an average price of $467. At its current trading price, Apple market value is hovering at $326 billion. A 32 percent increase into the upper $400s would push Apple's market value to $433.7 billion and propel it past Exxon Mobil, which currently has a market value of $423.2 billion. This continued climb has prompted some to question whether Apple is ripe for a stock split. The Cupertino company last split its stock in February 2005 when it was trading at $88.99 per share. Now that it is 690 percent higher than its 2005 level, some analysts are suggesting Apple may be ready to drop the price on its stock and let smaller investors into the fold. There are pros and cons to a split, not the least of which is Steve Jobs' desire to see the stock price climb higher. Apple won't comment on this possibility, officially stating "We have not announced any plans for a stock split." [Via Fortune]
No Apple stock split...for now.
Thursday, Briefings.com, CNBC and a passel of other market analysts predicted that a 4 for 1 stock split would be announced at the Apple Shareholder Meeting. This rumor moved the market, but there are conflicting opinions to why. First, for the uninitiated, a stock split is a zero sum game. One interpretation is that a firm considers its stock too highly priced for the average consumer and decides to split. For example, let's say that Apple is trading for $200 and you have one share. If a 4 for 1 stock split takes place, you will wind up 4 shares, instead of 1, but each share will be valued at $50. Did you gain or lose any money? No. It's all on paper. However, to those not familiar with the Buttonwood tree, and that's a lot of us, it sounds like 'quick buy Apple and you'll be getting 4 times as much'. The case for this sort of stupidity is well made by Barrons. Stock splits are nothing new to AAPL. They've split 2 for 1 three time in the past, in June 1987, June 2000 and February 2005. There are two general schools of thought on the reason behind stock splits, and they are total opposites. The first theory is that a company will split a stock if it is in trouble to allow lower dollar investors to buy their shares at half the price and thus incur less risk. The other school of thought is that a good company realizes their stock is just too expensive for the small trader who has some cash on the sidelines. It is meant to give the small guy an easier way to buy some stock without needing to commit the $200 for a share. Both sides have their points and, to an extent, both points are based on smoke and mirrors since they do not effect the worth of the company or the aggregate value of the stock by one penny.
