Apple’s Bull Run to Stock Split

Edited by Vani Rao

Stock trading near its 52-week high

Illustration: John R. Coughlin
Illustration: John R. Coughlin

It is barely a fortnight to Apple Inc.’s (NASDAQ: AAPL) historical 7:1 stock split and stock is trading near its 52-week high of $607.33. On Wednesday, May 21, 2014, Apple’s shares closed at $606.31, its highest closing price in the last 52 weeks.

This is Apple’s fourth stock split since its IPO on December 12, 1980. Apple came up with its first stock split of 2:1 on May 15, 1987, followed by another on June 21, 2000. The last stock split was on February 18, 2005. As per the terms of the latest stock split, each Apple shareholder on record at the close of business on June 2, 2014, will receive six additional shares for every share held on the record date, with effective split price as on June 6, 2014, and post-split trading to resume on June 9, 2014.

In general terms, a stock split will result in nil monetary gains for the investors as they will now be owners of seven shares of the same value as they would before the stock split. However, in the long run, a lower priced stock will attract small investors and will result in capital gains. It will also bring in liquidity for an investor, i.e., an investor can easily trade the shares for cash by selling smaller denomination shares.

Apple’s stock split is the major stock-split by an S&P 500 company after Google Inc.’s (NASDAQ: GOOG) 2:1 stock split on April 2, 2014 and MasterCard Inc.’s (NYSE: MA) 10:1 on January 21, 2014.

Will it Follow MasterCard and Google Post Stock Split Suite?

MasterCard had the third-largest share price before the 10:1 stock split, behind Google and (NASDAQ: PCLN). Post the share split, the company had also announced a $3.5- billion share repurchase program, similar to Apple’s infusion of additional $30 billion capital return program to the existing $60 billion. In line with Apple’s current price level, MasterCard’s shares were trading near its all-time of $847.48 before the stock split.

Source: WSA/Bloomberg
Source: WSA/Bloomberg

However, in contrast to its pre-stock-split blitz, MasterCard’s stock had been declining ever since. The company’s shares are down $6.73, or 8.08%, post the split and are currently trading at $75.63 as on May 22, 2014, from the highest price level of $83.9, a day after the stock split.

MasterCard’s three-month average volume before the stock split stood at 6.46 million shares more than the post-split average volume of 6.04 million shares. At present, the stock has a trading volume of 4.37 million shares, below the pre- and post-split average volume.

As per Google’s stock split plan, every shareholder would receive and additional “Class C” share traded under “GOOG” ticker, while discounted priced original “Class “A” would trade under the new “GOOGL” ticker.

Following MasterCard’s trail, Google “Class A” and “Class C” shares were also down 3.81% and 3.50%, respectively, post the stock-split. The stocks a present are trading below the pre-split and post-split average volume. However, the combined post-split volume of 5.38 million shares was above the pre-split volume of 4.44 million shares.

Source: WSA/Bloomberg
Source: WSA/Bloomberg

It has been a month since Apple shrugged off inertia and declared dividend hike in its last second quarterly results as on April 23, 2014. Apple shares have surged $81.56, or 15.54%, post the quarterly results and stock split announcement.

However, Apple has a history of creating its own trend, rather than following its predecessors. Investors are positive on the stock as the company had posted a stellar second-quarter earnings and is likely to announce its most awaited improved iOS 8 in June 2014 at its annual Worldwide Developers Conference in San Francisco. Moreover, it will also reveal the new iPhone 6 in September 2014.

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