Splitting the Apple: Will Its Stock Ever Be Affordable Again?
Leave it to Google (GOOG) to steal Apple's (AAPL) thunder.
Amid all the recent speculation about whether Apple would split its increasingly pricey shares -- now topping $600 a share -- it's Google grabbing the spotlight and announcing last Thursday an effective stock split of its own.
Google? Yes, Google. Not Apple. Apple CEO Tim Cook has signaled that there is "very little support" from the company's board to split the stock. But people are clearly interested in one, and Google's action might put more pressure on Apple to consider a share split of its own.
So let's see what a split means for investors and whether it might make sense even if Apple's not considering one today.
When a company splits shares, it reduces the value per share but gives shareholders a proportional level of extra shares. Simply put, in a 5-to-1 stock split, a $100 company would now trade at a $20 per share price, but you'd now own five shares for every one you used to hold.
On a practical level, there has been no change in value. So why bother splitting?
- Proponents point to the added "liquidity" of the stock, saying it's easier to come up with the cash to purchase a $100 stock than a $10,000 one.
- Behavioral studies have shown that investors prefer stocks well below the $100-per-share range and that companies that split outperform the market both in the short range after splitting and over the long run.
- Finally, we come to options. A stock that's expensive on a per-share basis can be expensive to execute options strategies on. If Apple sits at $600 per share, that means an option represents $60,000 in stock!
Looking at Liquidity
First, let's address the liquidity issue. Comparing Apple with many of its large-tech peers that trade at far lower share prices, we find that Apple apparently isn't affected by its higher share price.
Average Shares Traded
Average Value Traded
Percent Market Cap
Traded per Day
What these results show is that even after accounting for Apple's 45% rise over the past three months (and other tech peers seeing their own jumps in this time as well), a significantly higher value of Apple's shares trade every day. On April 10 alone, nearly $20 billion worth of Apple stock was traded!
Google's trading volume is on par with other tech peers. And then there's Priceline.com (PCLN), which sits at $738 per share, higher than both Apple and Google. Priceline sees 2% of its market cap traded each day. That's a number higher than every other tech company aside from -- you guessed it -- Apple.
The conclusion: Tech companies with higher share prices appear to have even more trading and liquidity than their low-priced peers do.
What's an Apple Fan to Do?
As Apple becomes larger and larger, another common question is: "At prices like this, who's left to buy its shares?"
Apple already fixed a part of this question by paying out a dividend. The company can now be purchased by dividend-focused funds that control a sizeable amount of assets. And the big institutions that are buying large lots of Apple aren't affected by its share price.
Still, that leaves the rest of us. It can be frustrating for individual investors that buying a single share of Apple means shelling out $600. Yet fear not if the high price of each Apple share is turning you away: We've compiled a list of 3 Hidden Winners Inside the iPhone and iPad that all trade at low enough share prices that any kind of investor could add to a portfolio. You can grab free a copy today.
Motley Fool analyst Eric Bleeker owns shares of Cisco and Berkshire Hathaway. The Motley Fool owns shares of Google, Berkshire Hathaway, Intel, Cisco Systems, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Google, Apple, Berkshire Hathaway, Microsoft, priceline.com, and Intel, and creating a bull call spread position in Apple and Microsoft.