Norad and US Northcom/Austin Community College
New York, NY – Apple and Tesla, two of the stock market’s most prominent companies, announced a stock split on Monday.
Apple announced a 4 for 1 stock split to take effect on August 31, 2020. This will be Apple’s fifth public stock split.
Tesla simultaneously announced a 5 for 1 stock split, also set for August 31, 2020. It is said that a single share, which was trading at approximately $450.00 on August 12, will be valued at closer to $100 in September as a result of this move.
The basic concept of a stock split involves one share being split into multiple shares without changing the gross value of the investor holdings. In other words, it means breaking down shares into single simpler units.
There are many companies like Berkshire Hathaway that do not split stocks. Berkshire’s class A shares were valued at $320,000.00 per share, unaffordable for the common people. Berkshire’s class B shares, that have been split in the past, are much more affordable for the general public at $213 per share.
Celebrity investor Jim Cramer opined on Wednesday that he would like to see Amazon, Alphabet, Chipotle, Netflix, Adobe, Costco Wholesale, Home Depot, Facebook and Microsoft to follow this step in order to reduce trading prices.
He said, “If you want the market to keep climbing, these ten companies and many more need to start taking their cue from … Tim Cook and Elon Musk.” He further added, “the size of the price tag matters with this [young investing] crowd” and “you want this no-commission paying crowd in your stock.”
Following this announcement, the stock market shot up drastically. Tesla gained 13 % with a value of $1,564.76, and Apple climbed by 17%. This coincided with one of its blockbuster earning reports.
This move is advantageous at a time when zero-commission trades are in practice at online brokerage firms. Brokerages such as Schwab, Etrade, Fidelity, and Robinhood are not charging commissions on regular U.S.-based equity trades. These companies also do not support limited orders for fractional trades.
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The Current Affairs Times interviewed a few people who have substantial knowledge regarding investments. One such investor told the Current Affairs Times that the “announcement of Apple and Tesla stocks split won’t have any significant impact on my personal trading methods as I have been using the fractional shares. I do see a benefit for people who use the traditional methods as these stocks are now in their reach. With the recent performance of the tech stocks, common people would definitely benefit by this decision.”
Bespoke Investment Group Data confirmed, “It has been witnessed in the past five years that companies who have announced a split in the shares averaged a 2.3% gain between the announcement and actual execution time period with over 68% outperforming the S&P 500.”
However after the actual split many companies have seen stock prices fall 0.3 % with only 29% beating the S&P 500.
These companies have averaged a 9.8% gain in the following year, with just 47.8% outperforming the S&P 500. Paul Hickey of Bespoke Investment Group said, “While both Apple and Tesla have seen their stocks rally following their split announcements, history suggests that they may underperform once those splits take effect.”
Senior software engineer Gaurav Dublish told the Current Affairs Times, “splitting this stock will attract more investors and drive prices far away from reality. I think it is not morally right to split the stock at a time when money is mostly pouring in from retail investors who will lose a lot when the stocks come back to reasonable price.” This is Dublish’s personal opinion and does not reflect the opinions of his associates or employers.
Julian Emanuel, the Managing Director of a global financial service firm, BTIG,recently noted that “Apple will go from the largest to the 16th biggest stock in the Dow Jones Industrial Average, something that could theoretically decrease demand from passive Indexers. He believes Apple could succumb to Newton’s Law of Gravity in the week’s ahead.”
It looks like many tech companies with higher stock prices might join Apple and Tesla in announcing a split. However, only time whether this split is a boon or bane for these two giant companies.
Will a lower stock price benefit these companies and common people alike? Only time will tell.
Image credit: Norad and US Northcom/Austin Community College
Sources:
- “Apple and Tesla just announced stock splits. Here’s what that means for your investments”
- “Jim Cramer calls on 10 companies, including Amazon and Alphabet, to issue stock splits”
- “Tesla and Apple Plan to Split Their Stocks. Here’s What History Says Happens Next.”
- “Why Tesla and Apple’s Stock Splits Could Be the Start of a Trend”
Afia is a lawyer, journalist, an avid traveler, an avid reader, a foodie, and an amateur singer. She enjoys instrumental music with her glass of wine ?
