Apple (AAPL) earnings impressed investors a month ago with strong results. But AAPL stock hasn’t just been moving higher on an earnings beat — the tech company also increased both its dividend and buyback plans.
In April, AAPL announced a 7-for-1 stock split that will take place Friday, June 6. Investors of record as of June 2 will have seven times as many shares after the Apple stock split, but at one-seventh of the price.
For instance, if you had 100 shares of AAPL at the current price of $630, you will then have 700 shares at $90 after the Apple stock split. The new split-adjusted price won’t be reflected until the following week, on Monday, June 9.
Notice that the math on both of those investments is the same, with $63,000 invested in AAPL either way.
Still, many investors believe that this big reduction in nominal share price for one of the hottest tech stocks out there will welcome many more AAPL stock investors and result in a bounce for shares.
Here’s everything you need to know about the Apple stock split, then, and why buying AAPL looks so appealing:
Strong Returns: Apple stock is up more than 11% since Jan. 1, significantly outperforming the mere 1% for the Nasdaq in the same period. The 12-month return for AAPL is also impressive at more than 40% returns vs. just 22% for the Nasdaq in the same period.
Not the First Split: This marks the fourth time Apple stock has split since it hit the public market. The last Apple stock split was a 2-for-1 split back in 2005. Since then, shares are up more than 700% vs. 100% gains or so for the Nasdaq.
Splitters Outperformed in 2013: Thanks to soaring equity prices, more big-name stocks executed stock splits in 2013, including biotech standout Gilead Sciences (GILD). Of the 11 companies in the S&P 500 that split, eight outperformed the market last year.
Apple May Join the Dow: As a price-weighted index, the Dow Jones Industrial Average has never been the right place for AAPL. But an Apple stock split would put it in the middle of the pack instead of making it dominate the 30 components — and many believe a lower share price could usher in its inclusion to this index. There’s no guarantee this would provide a bounce, but given the rise of index funds, it’s logical to think that anything benchmarked to the Dow will naturally become an Apple buyer if this happens.
Investors Are Dumb: Psychology and behavioral finance quirks cannot be discounted. The bottom line is that some investors won’t think Apple is “cheap” until it has a lower share price — regardless of the fact that some expensive stocks like Priceline.com (PCLN), which trades for more than $1,200 a share, have outperformed regularly in recent years.
Apple Might Not Be Clueless: All of this might not change anything for Apple, and could simply be financial engineering to change sentiment. But hey, if Apple’s board is aware of these perception issues and the serious flop in market value … then isn’t that a good thing?
There clearly are more substantive issues at play for Apple in the long term, including a highly-anticipated iPhone 6 launch in a few months and its recent big-ticket deal to buy Beats Music for $3 billion.
But in the short-term, the Apple stock split could be the biggest drivers of success for AAPL stock.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.