After Tesla and Apple announced plans to split their shares within a few weeks of each other, there has been a growing movement that more companies with triple and quadruple stock prices will follow in their footsteps.
“Everyone talks about it,” Howard Silverblatt, senior index analyst at S&P Dow Jones Index, told MarketWatch in an interview Thursday.
“I’m looking for companies from companies that require raw data … asking, ‘Is there any reason I should split up?’ [my shares]? he said.
Silverblatt said he thought company boards could indeed follow the leadership of Tesla and Apple at some point and share their stake in an effort to appeal to a wider retail audience, even if such action is almost a completely cosmetic exercise from a company and one that can be expensive.
“Will there be others who separate? I have to say yes. Them [companies] they may not be the only ones, “he said, referring to Apple and Tesla.
on July 30 announced a 4-for-1 share split that will take effect on August 31. At the time of its announcement, made after the close of regular trading, the shares of the iPhone manufacturer had closed at $ 384.76. They have earned nearly 20% since then at $ 460, as of Thursday.
Earlier this week, Tesla TSLA,
said a 5-for-1 stock split would be completed by Aug. 31, which also sent electric vehicle maker shares rising higher.
Shares were once a common occurrence on Wall Street, as companies tried to make their stock prices more attractive to average investors.
Back in the late 1990s and early 2000s, in the midst of the dot-com boom, stock splits were rampant (see chart attached).
But such divisions, of companies that create more shares, are a rarity nowadays.
Indeed, Tesla and Apple are the only stock splits so far in 2020, although the average share price among publicly traded companies is $ 149.32, compared to an average share price of $ 51.08 in 1997 when had 102 stock shares, marking the largest number of shares in the last three decades, according to S&P Dow Jones index data.
The Wall Street Journal in a 2017 article, titled “Split Decision: The Pros and Cons of Sharing Shares,” wrote that beyond the appeal to retail investors, making a stock look more fluid and less overestimated have been among some of the reasons the companies had decided to enact the divisions.
MarketWatch columnist Mark Hulbert back during Apple’s latest announcement of a stock split in 2014 said the stock split could also be read as a vote of confidence by a company’s management.
“Of course, the division of shares in itself is just a cosmetic accounting thing that brings down the stock price. The reason it is strong is that it is a signal of something that is fundamentally good news and that the good news is the belief on the part of management that their stock price will not only stay at its current level , but will continue to rise and therefore they need to share it so that the stock price returns to a sweet spot, “he explained.
Shares of shares are now coming as mother and pop investors find themselves in a truly golden age of trading, where commissions are at or close to $ 0 and many brokerage platforms offer partial ownership of the shares, making the purchase of shares small in affordable companies and relatively low price.
Moreover, a recent string of excess skills from retail investors, who have made aggressive and hitherto successful bets in bringing back a number of coronavirus-damaged industries, compared to professionals, has come into the spotlight. investments by a young, young group of stock buyers.
This background would weaken the issue of stock splits driving retail ownership, but supporters of the move say promoting an environment that is retail could be a long-term good for the stock market in general and companies.
“Remember, the size of the price tag matters [young investing] the crowd “and” you want this commission without paying your crowd, “CNBC’s Jim Cramer told Crazy Money on Wednesday.
“This new group of investors, those who want stocks with very few dollars, will start buying and holding these breed names better than stained penny stocks,” he said.
Lindsey Bell, chief investment officer at Ally Invest, wrote last week after Apple announced that “it’s hard to say if this is the start of a new stock split.”
She noted only Netflix NFLX,
followed Apple’s lead in 2014 when it completed a 7-for-1 share split in July 2015.
That said, Bell says “a little support from expensive stock companies could be a big win for those who want an Apple bite (and other high-tech / high-priced stock)”.
Silverblatt said there are a number of high-priced companies that can adjust the profile of those interested to lower their stock price due to a split.
His data show that there are 63 companies with a share price of at or above $ 250, up from 44, as of August 12, 14 companies with shares at $ 500 and up, from 10 at the end of 2019; nine trades with or over $ 750 a share, out of six, and seven companies boasting a stock price of $ 1,000 or more, two more than at the end of last year, and two issues bearing a $ 2,000 share price or rather, when there was none at the end of 2019.
CNBC’s Cramer said he favors a stake in Amazon.com Inc. AMZN,
Google Parent Alphabet Inc. GOOGL,
, Chipotle Mexican Grill CMG,
Netflix, Nvidia NVDA,
Wholesale Costco Cost,
Home Depot HD,
Facebook Inc FB,
and Microsoft Corp. MSFT,
Amazon, whose shares closed around $ 3,161 on Thursday, has not split its shares since 1999.
A recent Wall Street Journal article said administrative costs could serve as an additional hurdle for companies considering a stock split, citing an academic paper linking the administrative cost of a stock split to about $ 800,000 per company. big.
This cost to some megalithic companies is relatively small, especially if management thinks the long-term value of a division outweighs the costs.
Hulbert, citing a study commissioned by David Ikenberry, a professor of finance at the University of Colorado, says the average share that goes into a two-to-one stock split beat the market by 7.9% in the year after the split was announced – and with 12.2% during the three years following this announcement.
That said, he recently acknowledged that the split effect has weakened in recent years.
But it also notes that buying a company just because of a planned split is unlikely to be a good long-term investment strategy, in any case.