AAPL: Everything You Need to Know About the Apple Stock Split

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AAPL: Everything You Need to Know About the Apple Stock Split

Despite a superstar lineup of tech earnings reports last week, Apple (AAPL) handily stole the spotlight on Wall Street. That’s because the company, besides posting an earnings beat and upping its dividend, announced that a 7-for-1 stock split is in the cards for AAPL stock.

AAPL AAPL: Everything You Need to Know About the Apple Stock SplitThat news pushed shares of Apple stock up more than 8% last Thursday, with shares ending the week at just under $572. It also made AAPL the fourth member of S&P 500 to announce a split so far this year. And, of course, it had just about everyone who’s anyone weighing in on the subject.

So what were top talking heads saying about the Apple stock split? We rounded up a wide variety of voices to give you a full picture and help you digest the latest AAPL news.

Everything You Need to Know About the Apple Stock Split 

The Date: Apple stock will trade on a split-adjusted basis starting June 9, which will affect all shareholders on record as of the close of business on June 2.

The Context: For those who are counting, this will make for the fourth time Apple stock has split since it hit the public market. More specifically, shares of AAPL were last sliced into smaller pieces back in 2005. But don’t be surprised by that time gap. As Randall Forsyth of Barron’s explained, stock splits have faced waning popularity since the turn of the century or so. He writes:

“Apple’s stock split brings back memories of partying like it was 1999. Splits were all the rage back then, even though they’re the equivalent of giving two fives for a ten. Rational or not, a company management’s declaration of a stock split is an implicit vote of confidence they think the shares are headed still higher … But splits have largely fallen out of fashion … [Rare] are splits as big as Apple’s 7-to-1 change, especially in recent years. It seems a matter of fashion. Triple-digit stock prices perhaps are viewed as something to brag about, like exalted house prices.”

The Motivation: So why are the folks at Apple taking that impressive triple-digit stock price and whittling it down? Well, the straight-from-the-horse’s mouth answer is that the company wants AAPL stock to be “more accessible to a larger number of investors.” But considering the unusual choice of a 7-for-1 stock split, speculation is mounting that the folks over at Apple are hoping its new price tag could mean admission into the Dow Jones Industrial Average.

InvestorPlace’s Jonathan Berr explained that, “The overseers of the broad market index don’t want their widely followed metric to be weighted toward one stock. A stock with a $525 price would do precisely that.” And if you executed the split now based on Friday’s closing price, AAPL stock would go for just over $80 — a share price that sticks in right in the middle of the current Dow components.

Jordan Weissman of Slate also weighed in with some optimism on the soon-to-be-cheaper shares of AAPL, writing that the Apple stock split is a vote of confidence from management. As he put it:

“Most companies like their stocks to trade within a certain range. It can’t be too high, because even if the fundamentals justify a lofty price, retail investors get intimidated (instead of looking at factors like price-to-earnings ratios). But it also can’t be too low, because everyone gets squeamish when shares scrape bottom. If a company is willing to cut its share price in half or in thirds with a split, it usually means management believes the business is in good enough shape that they won’t have to worry about shares dipping even further down the line.”

The Skeptics: But setting the vote of confidence and potential Dow joining aside, there’s plenty of skepticism surrounding the Apple stock split. For one, the split itself doesn’t add any value to AAPL. Instead, it’s the psychology and accessibility that could be a driver. And in the eyes of many Apple stock investors and watchers, this move (along with the dividend increase) could be seen as compensation for the fact that the company’s organic growth has dropped off dramatically in recent years. A few money quotes from AAPL skeptics:

Neil Irwin, New York Times:

“Suppose I have a delicious pie (apple, let’s say), that is divided into four slices. And then I decide to divide it again, into eight slices. Do the individual slices become more delicious? Of course not. They become easier to share among a large group of people, but the quality of the pie, and the amount, haven’t changed a bit.”

“With its split decision, then, Apple is effectively choosing its own shareholders — and not the ones who are most likely to stick with the company when it encounters bad times.”

Trip Chowdhry, quoted by Ansyua Harjani and Matt Hunter, in CNBC:

“Anyone can do financial engineering … If anything, the move shows that Apple’s board is aware of the fact that the company has lost billions in market share since Tim Cook took over in 2011.”

Alex Gauna, quoted by Jeff Morganteen in CNBC:

“[Apple stock] keeps moving higher here ahead of a well-anticipated iPhone 6 launch … [but] how far it can go will depend on what we can get from Apple. Unfortunately we’ve been disappointed in the past.”

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


Article printed from InvestorPlace Media, http://investorplace.com/2014/04/aapl-apple-stock-split/.

©2014 InvestorPlace Media, LLC

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