Apple on Thursday announced a 4-to-1 stock split, a move driven by the board’s desire to make $ AAPL stock “more accessible to a broader base of investors.” The stock split will take place for shareholders of record on or after August 24, 2020. Trading in the stock split adjusted to begin on August 31.
Apple also announced a record quarter in June. Apple shares closed the regular trading session on Thursday at $ 384.76, up $ 4.60 (+ 1.21%), on a significant volume of 38.8 million shares traded in the hands . In the after-hours market, AAPL added another 6.03%, to rise to $ 407.95 per share, up from $ 23.19.
What Apple’s 4-for-1 Stock Split Means
What Apple’s stock split means is that if you own a $ AAPL stock now, it will turn into 4 stocks at a price of 25% of what it was valued at. As a shareholder, you will have four times as many shares, but the total value of those shares will remain the same.
Apple’s last stock split was a 7-for-1 stock split that took place in June 2014. Apple completed three 2-for-1 stock splits in February 2005, June 2000, and June 1987.
Why companies are doing stock splits
There are no objective truths about when or if a company should do a stock split, and there are many different ideas on the subject. In general terms, companies divide their stocks when they want the stocks to trade at a lower price per share. Conversely, a company can do a reverse split if it wants its shares to trade at a higher price per share. For example, during the financial downturn of 2008, Citibank carried out a 10-to-1 share consolidation when its shares fell so much that they would have been delisted from the New York Stock Exchange.
Apple has, for both this split and the 2014 7-for-1 split, said it was doing the split to make buying shares easier for more people. For example, if Apple had never done a stock split, the price per share would be 224 times higher, or $ 86,186.24. In other words, to buy a single stock, you would need over $ 86,000, and it turns out that not many people can. The idea is that by making a stock more accessible, more retail investors (i.e. ordinary people) can get it on the stock. More importantly (for the company), more people should be able to buy stocks, pushing the price higher than it would have been without the split.
Many tech titans scoff at the idea of a stock split. Elon Musk is an example of this approach, and his largest company – Tesla ($ TSLA) – ended the trading session at $ 1,487.49 per share. However, Warren Buffet is the poster child of this attitude and his company – Berkshire Hathaway ($ BRK.A) – ended Thursday’s session at $ 291,362.01 per share. Obviously, institutional and very wealthy investors are the only entities that can buy shares of $ BRK.A. Berkshire Hathaway has a second class of shares (BRK.B) which trades at a much more affordable price of $ 196.50 per share.
For the sake of full disclosure, I own a tiny stake in AAPL and BRK.B – these tiny holdings have never had any bearing on my writing on Apple or any other company.
The share price is not the same as the market capitalization
Some people find it difficult to understand the relationship between stock price and the value of a company. Over the years, for example, I have seen many comments from people comparing Apple’s stock price to Microsoft, Google, and other potential competitors. Taken in isolation, the share price does not matter. Only when you multiply the stock price by the number of shares outstanding can you see the real value Wall Street places on a company.
For example, let’s go back to BRK.A, the stock is currently trading at $ 291,362.01 per share. It’s incredibly high, but there are only 693,000 shares outstanding. This gives Berkshire Hathaway a market cap of $ 201 billion.
Apple, by contrast, trading at a “mere” $ 385 per share, has a market cap of around $ 1.7 trillion. This is because Apple has 4.3 billion shares outstanding. If the 4-for-1 stock split took place today, Apple would have around 13.2 billion shares outstanding, but each would trade at $ 96.25, leaving its (also staggering) market cap of 1.7 trillion. of dollars unchanged.
How to participate in the Apple stock split
If you already own Apple shares, you don’t have to do anything (other than not sell them) to have your shares split. Your brokerage will handle the split for you. If you don’t own Apple shares and want to participate in the split, buy shares before trading ends on August 24. Your brokerage will then also manage the split.