Yesterday Apple's stock started trading post 7-1 split. For every share that existed before there are now 6 new shares alongside it. If you owned 100 shares of Apple you now own 700 shares. Instead of the stock trading above $600 it now trades in the $90s.
Apple announced the split in late April alongside the Q2 results. At the time I explained how splits work and how they don't mean anything from a financial perspective. It would be similar to taking your giant slice of pizza and cutting that slice into 7 smaller slices. You'd still have exactly the same amount of pizza.
But from a psychological perspective stock splits do have some meaning. Splits are proposed and then approved by a company's board of directors. Board members know what's happening inside of a company (or at least one hopes they know). If they are smart and in tune with the market and their company's prospects they should have an idea of whether or not their stock is at significant risk of collapsing in the near term.
So if a board approves a split, it generally signals that they believe the stock doesn't face any big near term threats. But just because a board of directors feels this way doesn't mean they are correct. That said, it's worth considering their implicit opinion simply because they know more than the average shareholder.
And when a board approves a stock split while simultaneously announcing an 8% raise in the dividend, as Apple did, it's a stronger signal than one of those moves in isolation.
The result? When Apple announced the split the shares traded at just over $560, or about $80 when adjusted for the split. They are now up over 23% trading around $93 as I write this. That's a pretty solid result. People are now watching for Apple to cross $100. In fact if Apple hits $101 it would be a new all time high for the company's shares.
You could argue that Apple's board just got lucky on the timing. But I have a feeling the board is made up of smart folks who understood the potential for Apple's expansion plans. Those plans included Beats and everything they announced recently at WWDC. They probably include a whole lot more that we aren't yet aware of.
My question for readers: Even though you logically understand that Apple's shares are not financially cheaper than they used to be (they're actually more expensive now), are you more tempted to buy them simply because of the reduced per-share price?
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Former sell side analyst, out-of-box thinker, consultant, entrepreneur. Interests: Wife & kids, tech, NLP, fitness, travel, investing, 4HWW.