Magic Wand: Apple Shares Trade at Sub-$100 Price

Edited by Vani Rao

Investors reap benefits post 7:1 stock split

It was an unusual trading session for Apple Inc. (NASDAQ: APPL) stock traders as the stock was trading at the sub-$100 level on June 9, 2014. Apple’s shares had last traded at the sub-$100 level five years ago on March 17, 2009. The company’s shares ended Monday’s session at $93.70 a share, with a higher than three-month average volume of 75.41 million shares.

Gains for small investors

Apple’s 7:1 stock split will not result in any monetary gains for investors as they will now be owners of seven shares of the same value as they would before the stock split. Also, there will not be any change in the valuation of the company, except the number of outstanding shares at a lower denomination at the same par value. The recent quarterly dividend of $3.29 will be equally divided into seven shares, i.e., each share will carry a quarterly dividend of $0.47.

However, the sub-$100 price of the Apple stock will certainly attract small investors, resulting in capital gains for them. 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 CEO Tim Cook, during the recent quarterly release on April 23, 2014, said, “We’re taking this action to make the Apple stock more accessible to a larger number of investors”.

Investors are positive on Apple’s revenue roadmap as it has roped in Beats in its product line and announced major software changes at its recently concluded 2014 edition of the Worldwide Developer Conference (WWDC).

In the company of elite blue-chip stocks

Following its recent stock split, Apple would now be part of the Dow Jones Industrial Average Index (DJI). Being part of the DJI will improve Apple’s creditability since it will be part of an elite group of blue-chip stocks. In addition, Apple’s shares would now trade below the $100 mark, making it the most eligible stock in the DJI. Apple was earlier not a part of the DJI since it is a price-sensitive index and the high price of the Apple stock would cause volatility to the index.

Cumulative benefits

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 June 16, 1987, followed by two 2:1 stock splits on June 21, 2000 and February 28, 2005. As per the terms of the latest stock split, each Apple shareholder on record at the close of business on June 2, 2014, received six additional shares for every share held on the record date.

Source: WSA
Source: WSA

On December 12, 1980, Apple listed its shares on the NASDAQ at $28.75 a share. In the last 34 years, Apple’s shares have grown by leaps and bounds. After the first split in 1987, the value of one share was $41.5. Apple’s per share value increased to $55.62 after the second stock split and declined to $44.68 after the third. As on June 9, 2014, after the 7:1 stock split, Apple’s per share value stands at $93.7.

If an investor had owned an Apple share worth $28.75 in 1980, he/she would now be the proud owner of 56 Apple shares at $93.7 each, and the cumulative share value would now be $5,247.2. Therefore, an investment of $28.75 in Apple shares in 1980 would have a present value of $5,247.2, more than a whopping 182 times the initial investment! Since the stock split announcement, Apple shares have been on a bull run to split and have surged over 23% in value.

Source: WSA
Source: WSA

So far in 2014, MasterCard Inc. (NYSE: MA), Cognizant Technology Solutions Corp. (NASDAQ: CTSH), Google Inc. (NASDAQ: GOOGL), and Under Armour Inc. (NYSE: UA) have announced stock splits. However, the stock performance of most of these companies has not seen any uptrend following the stock split. While MasterCard and Cognizant Technology have registered negative growth post the split, Google has only managed to push its head above the water. Only Under Armour has outperformed its stock split peers till date to record a substantial gain of 8.58%.

In a run-up to the upcoming iPhone 6 launch later this year, Apple has upgraded its operating systems to a better and smoother iOS 8 for the iPhone and the iPad as well as the OS X 10.10 “Yosemite” for Mac users. Moreover, the recent acquisition of Beats Electronics will add to its revenue after the Federal approval by the end of this fall.

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