Apple Inc. (APPLE:AAPL) has split its stock four times with the last time being two and a half year ago at a ratio of 7:1. Today, a single share in the world’s most valuable company is valued at around $112, which is more than the share price of about 75% of the stocks in the S&P 500. So, will it go for the split again, and if so, then when?
Split – what it means for investor?
As per Alex Dumortier of Motley Fool, the Cupertino, California-based company has just one legit reason to go into split again. Back in April 2104, before the split, Tim Cook stated, “We’re taking this action to make Apple stock more accessible to a larger number of investors.” Cook was talking about the individual investors as institutional investors are least concerned if the money is trading at $90 or $630.
The question arises how a stock split impacts Apple Inc. (APPLE:AAPL)’s intrinsic value. The answer to this is that it does not in any way, shape or form, says Dumortier.
A fundamental investor will understand that purchase of the stock refers to buying a fractional ownership in the company. Intrinsic value does not go through any change with stock split as one share into several new shares does not change anything about the business and its prospects, and neither its risks.
The stock price, however, will be affected once the stock split is announced as price tracking speculators will try to make profit by trading on the news. Fundamental investors should not get into this activity as the traders try to make profit on a temporary price and does not eat into long-term returns that investors expect to earn.
When will Apple go for split?
Going by the first three stock splits ($78.50, $101.25 and 88.99), Apple might be considering another stock split sooner. However, last split, when the stock was trading at $650, indicates that the company could take a split decision at a higher price compared to the past. Almost all the companies in the S&P 500 with share price within three or even four digit are comfortable with the higher price, notes Dumortier.
If it is assumed that Apple Inc. (APPLE:AAPL) will wait for the stock to hit $500 before split and the stock rises by an average annualized rate of 16% over the coming years, then it will take approximately 10.5 years until the next split. If the average annualized rate is reduced to 12%, it will take 14 years.
“Personally, I’ll be surprised if the next split occurs any sooner than fifteen years from now. However, I hope I have convinced you that the prospect of a stock split isn’t in itself something investors ought to devote any attention to,” says Dumortier.
On Friday, Apple shares closed up 1.63% at $113.95. Year to date, the stock is up over 8%.
This article is not intended as individual or reader-specific investment advice. Do your own research and consult a financial professional, if necessary, before investing in anything.