Tesla (TSLA) and Apple (AAPL) recently grab the attention of investors when the two companies shared their plans of next stock split as they sought to make their shares available to a large number of investors. Over the past 12 months, the shares of both the companies have been performing well, which has been significant and though partly but justifies the decision of stock split. Shares of Apple touched a trading price of $503.43 while Tesla is buoying at $2,050. The stock split will make the individual investors having small amounts to invest able to get their hands on these two bigger stocks easily.
The split stock decision raised many question but couple of them like “How that split would work?” and “How investors would respond before that upcoming split?” are worth discussing.
How that split would work?
In case both companies coordinated with each around their stock splits, then both will execute the split on same day and that would be August 31. For Tesla, split will form five shares against each of its current share while Apple’s each share will be divided into four shares.
How split would seems to be, depends upon price of the stock just before occurrence of the split. But to get an approximate idea of the incident, one can assume the current price as reference. Holders of Apple’s shares, after the split, would become owner of four $124.37 shares against each Apple share having current price of $497.48. Similarly, the split will make those investors, who currently own Tesla shares of worth $2,050 each, owner of five shares of $410.00.
Investors’ response to split
The news of splits could mislead the new-to-trading investors to believe in that it make the shares of both companies particularly more attractive, as shares of both companies are on the price surge after the announcement. But such a thought is wrongful as companies’ market value will remain same with or without going through a stock split. We could understand it in another way too: as split would not impact the value of shares held by individual investors. They will only be holding more number of shares after the split but at the adjusted prices.
And chances are there for sure that the demand of stock would increase after the split as smaller investors with limited resources are likely to be rushing to grab the shares by forming groups. But the investors familiar with the stock markets trends know that it is only the performance of any business which decides the fate of its stock price in longer term. Therefore a scenario of price hike to an unjustified level coming out of a split would encourage some investors to sell the stock to make profits. And that will be offsetting for rising demand of shares after splits.
One cannot say anything about the trading pattern of Apple and Tesla in weeks to come before splits. But investors are recommended to keep their eyes on the essential business performance, long-term sustainability and valuation of both the stocks during that time.