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?
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