On August 31st EST, Tesla and Apple, two of the most “value” companies, officially completed their share spin-off on Monday. Analysts say there is no rush to buy, and when the company splits the stock, its total value does not change, only to get more shares at a lower cost.
Apple’s stock is now worth more than $2 trillion. Meanwhile, Tesla, valued at more than $460 billion, rose 12 percent this morning, making it the seventh-largest U.S. company.
Apple split the stock 4-to-1 today. If you hold an Apple stock for $500, investors will suddenly find themselves with four $125 shares. The same value just becomes more shares. Companies with soaring share prices sometimes split their shares into smaller pieces, making it cheaper for retail investors to buy them. If Apple had never split its stock, its share price would have reached $27,957 by Friday’s close.
Douglas Boneparth, founder and CEO of Bone Fide Wealth in New York and a registered financial planner, sees the stock split as more of a gimmick: “It’s a marketing ploy designed to attract smaller investors to invest in the stock, and the company actually works in the same way.” “
With the intervention of new trading platforms such as Robinhood, stock splits are no longer as influential as they once were. In brokerages, investors generally buy sporadic shares. But a stock split is not entirely useless, and investors believe that a company’s confidence in the continued growth of its share price will make a choice. In July, Tesla reported its first full-year profit, and Apple posted its strongest second-quarter results on record.
While the stock split is a new starting point for the two companies, the news is more symbolic than practical, after all, in the expectation of investors. Miller Tabak Chief Market Strategist Matthew J. “Today’s big news is really old news,” Maley told Sina Finance. As a result, these developments may not have much impact. Instead, people will be watching how these stocks are going for the rest of the week. Just in case we get into September, these stocks will have a “message sell” reaction. “
“Hearsay buy, news sell” is a phenomenon that exists in most markets, especially financial markets. Traders sometimes turn this idea into a trading strategy based on what they think will happen to an upcoming economic report or event. When a trader buys an asset based on this guess, it forms the stage of rumors about the strategy. Once the waiting event has passed or the report is published, the well-known information becomes public. Traders then sell their shares and the market changes.
That’s why traders generally agree that they are in no hurry to invest in the two companies after the split. Dan Ives, an analyst at Wedbush, said he would adjust Tesla’s target share price to $380, about 20 percent because of the split, while maintaining a neutral rating.
In Tesla’s case, recent data from iVest Plus, a stock and options trading platform, showed a significant increase in the number of investors hedging against or even betting on a decline before the split took effect. While investors have been bullish on Tesla’s stock throughout the quarter, the stock rose hundreds of points before the split, with a significant percentage of traders either turning to seeking to make money when stocks fall or continuing to go long, using more sophisticated strategies to limit declines rather than just buying typical call and put options. “
Between July 1 and August 10, 79.2 percent of options traded on Tesla’s stock were bullish, with 72.1 percent being the simplest bullish, according to iVest. From August 11th to August 21st, the proportion of call options as a basic call option fell to 59.8 per cent. “Following the spin-off, there has been a significant shift in traders’ perceptions of the future of the stock,” iVest said. “
History tells us that the company’s performance after the split is unpredictable. In the year after Apple’s first 1-to-2 stock split on June 16, 1987, the company returned 9.6 percent, surpassing the 9.9 percent decline in the S.P. 500 over the same period. On June 21, 2000, Apple split its stock for the second time, at the height of the dotcom bubble. A year after the split, the stock is down 59.6 per cent, underperforming the 16.4 per cent decline in the S. and P. 500 over the same period. On February 28, 2005, Apple made its third stock split, and in the year that followed, the company’s stock returned 52.7 percent, up from 6.4 percent in the S.P. 500 over the same period. On June 9, 2014, Apple made a 7-to-1 stock split, and the year after that it returned 36%. Stocks easily outpertupped the 6.6 per cent return on the Standard and Poor’s 500-stock index over the same period.
So even if Tesla and Apple’s share prices rose on Monday, that doesn’t mean anything. In the long run, companies will continue to be driven by corporate fundamentals, and spin-offs will not have an impact on long-term performance.