Stock Splits Would Lift These Sagging Shares

by Dan Burrows | November 9, 2012 1:13 pm

Shares in Priceline.com (NASDAQ:PCLN[1]) shrugged Friday after the online travel company said it would buy rival Kayak Software (NASDAQ:KYAK[2]) for $1.8 billion — but no worries here. After all, it’s par for the course. The stock of an acquiring company usually falls when it announces a deal, discounting everything from the cash and debt costs to integration and regulatory risk.

More worrisome for Priceline shareholders is that the stock has tumbled dramatically since hitting an all-time high in early April. Indeed, shares are off 18% from that spring high, and were down as much 27% a couple weeks ago. True, Priceline has added 34% for the year-to-date … but back on April 9, it was sitting on a 64% gain.

Does this make the Kayak acquisition smack of desperation? Perhaps. But there’s an easier, if more desperate, way to get the share price popping again:

A stock split.

Yeah, yeah, we know — the fact that shares soar when a stock splits[3] is kind of stupid. After all, nothing about the underlying business — sales, margins or profits — has changed, and that’s what ultimately drives share performance, at least over the long term. (It should, anyway.)

Splitting a stock is no different from me giving you five $20s in exchange for a hundred-dollar bill. Sure, you now hold five pieces of paper instead of just one, but you still have exactly 100 bucks — no more, no less.

However, the fact remains that stocks pop on splits because it brings in lots of new, smaller investors, especially when the nominal or face value of shares is too darn high for most folks.

Take Priceline. Not many retail folks trading their own accounts are going to be able to buy a big position — or even one share — of a stock that goes for $627 a pop, as Priceline does now. But do a 20:1 split, and suddenly that same stock looks a lot more affordable to lots of folks at $31-and-change.

And not only would plenty of retail investors pour in, but algorithms would have an easier time slinging chunks of stock in nanoseconds, too.

Of course, that’s the downside to a big split: Yes, you’ll get a lift by increasing demand, but that same demand is also going to greatly increase volatility.

Still, with those caveats in mind, there are some stocks out there with sky-high nominal prices that sure could use a boost these days.

Have a look at Apple (NASDAQ:AAPL[4]), for example. The stock is off more than 20% from its recent all-time high, but at $550 a pop, it’s still too pricey on a nominal basis for many retail investors to buy even one share. Split that stock at 20-to-1, however, and how many people would love to get in on Apple at less than $28 a pop?

Here are some other candidates that could easily reverse recent slides by splitting shares that look pricey at face value into something more affordable for retail traders:

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Endnotes:
  1. PCLN: http://studio-5.financialcontent.com/investplace/quote?Symbol=PCLN
  2. KYAK: http://studio-5.financialcontent.com/investplace/quote?Symbol=KYAK
  3. shares soar when a stock splits: http://investorplace.com/2012/04/buy-coca-cola-before-the-split-and-drink-up-big-profits/
  4. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  5. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  6. ISRG: http://studio-5.financialcontent.com/investplace/quote?Symbol=ISRG
  7. MA: http://studio-5.financialcontent.com/investplace/quote?Symbol=MA
  8. AZO: http://studio-5.financialcontent.com/investplace/quote?Symbol=AZO
  9. CMG: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMG
  10. WPO: http://studio-5.financialcontent.com/investplace/quote?Symbol=WPO
  11. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN

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