Ondrej Holzman Apple shares reached and exceeded the $600 mark for the first time in many months. It was last possible to buy one Apple share for more than $600 in November 2012. However, the shares will not have such a high value for too long, because at the beginning of June, Apple will split them at a ratio of 7 to 1.
Crossing the $600 mark for a single share indicates a positive reaction by investors to the recent announced financial results of the company, during which Apple also announced that it would again increase the funds spent on share buybacks. Much more visible, however, will be the move Apple will make on June 2, when it plans to split its stock 7 to 1. What will that mean?
Apple explains in the investor section of its website that it splits its shares in order to make them available to more investors. The Californian company does not provide more detailed information, however, we can find several reasons why it does so.
More shares, same value
First of all, it is necessary to clarify what it means that Apple will split its shares at a ratio of 7 to 1. Apple will do this on June 2nd, when it will also pay dividends. The second of June is therefore the so-called "decisive day", when the shareholder must hold his shares in order to be entitled to the dividend payment.
Let's assume (reality may differ) that on June 2 the value of one Apple share will be $600. This means that a shareholder who owns 100 shares at that time will hold a value of $60. At the same time, let's assume that between the "decisive day" and the actual distribution of the shares, their value will not change again. Immediately after the split, said investor will own 000 shares of Apple, but their total value will remain the same. The price of one share will drop to less than 700 dollars (86/600).
This is not the first time that Apple has split its shares, but it is certainly the first time that it is a less typical ratio of 7 to 1. In the classic ratio of 2 to 1, Apple split for the first time in 1987, then in 2000 and 2005. Now Apple has chosen an atypical a ratio with which he apparently intends to disrupt the market's expectations and start trading shares "anew".
The 7-to-1 ratio also makes sense given the dividend that Apple will now pay: $3,29 is divisible by seven, which gives us 47 cents.
New opportunities
By splitting shares and reducing their prices, Apple is responding to the last two years, when its shares have been on a swing. First, in September 2012, they reached their maximum (over 700 dollars per share), only to fall by a dizzying amount of more than 300 dollars in the following months. By splitting the stock now, it could shatter investors' preconceived notions about investing in Apple stock. At the same time, this will destroy all current comparisons with other companies, which many like to make.
The fundamental drop from $700 to $400 still has a big impact on many shareholders and creates a psychological barrier to further investment. Dividing by seven will now create completely new numbers, the price of one share will drop below $100, and it will suddenly open up to a new audience.
For individuals looking to invest in stocks now, getting more shares for less may seem like a better deal, even though the stock split has no effect on their value. However, the lower price per share allows for better manipulation of the stock portfolio in the future, where 10 shares at $100 will be better controlled and traded than one stock at $1000.
Also, for financial institutions that invest in shares, Apple's division may be interesting. Some institutions have restrictions on how much they can buy one share, and when Apple now significantly lowers its price, space will open up for other investor groups. It's no coincidence that the stock split comes at a time when financial institutions hold the lowest stake in Apple in five years.
I finally understand the stock split :) Good move in my opinion...