News

Apple and Tesla’s stock splits: Good deals or clever tricks?

September 2, 2020
Cat McLean

author:

Apple and Tesla’s stock splits: Good deals or clever tricks?

Investors have been rushing to buy Apple and Tesla shares in recent weeks. Since both companies split their stocks last month, the premium shares are, at least on paper, on sale. On July 30, Apple announced a 4-for-1 stock split, meaning investors get four shares for the price of one. Tesla followed suit a few weeks later. For the first time in Tesla’s history, it announced a 5-for-1 split.

Investors have been rushing to buy Apple and Tesla shares in recent weeks. Since both companies split their stocks last month, the premium shares are, at least on paper, on sale.

On July 30, Apple announced a 4-for-1 stock split, meaning investors get four shares for the price of one. Tesla followed suit a few weeks later. For the first time in Tesla’s history, it announced a 5-for-1 split.

Since then, Apple shares have shot up more than 35%, gaining 4% on Monday the 31st of August alone. They’re now trading at around USD $134 as at the 2nd of September.

Tesla shares have skyrocketed by more than 80%, gaining 12% of that on Monday the 31st of August. The company’s share prices hit $498 on Monday the 31st of August. 

It sounds like a good deal on paper, however, analysts warn that splitting stock is nothing more than an ‘accounting trick’. 

A stock split is when companies divide their existing shares to make individual shares cheaper. Companies split stock as a quick way to increase liquidity. It doesn’t, however, actually add any real value.

 

“While the companies’ share prices are lower, nominally, the price to own the same percentage of each company as before is not. A stock split is, fundamentally, a cosmetic accounting trick—and buying fractional ownership of these companies is, on a relative basis, more expensive than ever after factoring in recent gains in share price,” wrote Robert Hackett in Fortune.

 

On Monday, billionaire investor Leon Cooperman told CNBC’s Squawk Box that he sees stock splits as a troubling sign for the markets.

 

“Look at Tesla and Apple: Everybody understands that splits don’t create value,” he said. “My dad once told me if you gave me five singles for a $5 bill, I’m no better off.”

 

This is Apple’s fourth stock split since going public in 1980. According to market analytics company, Kensho, Apple’s stock goes down by an average of 5.6% two weeks after a split. Following its second stock split in 2000, the dotcom bust decimated investors’ returns.

As we once again face so much economic uncertainty, these kinds of investments could prove costly, at least in the short-term. Or they could outperform?

To be a successful investor, it’s important to be educated about the ins and outs of the markets and the wider economy. 

And who better to learn from than the most skilled investors around? Join us for our monthly ‘Meet the Funds Manager’ live webcasts to hear directly from Australia’s finest investment managers on the emerging themes and trends in the market. In the next session we are joined by Dr Jerome Lander from Lucerne Investment Partners. This is a live and interactive session with a Q&A, you simply need an internet connection to participate. Book here.

Sources:


General Advice Warning

Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

Please click here to read our full warning.

Live Investor Briefing

Learn how regenerative farming is transforming the agriculture industry

Leave a comment