It sounds like the biggest discount campaign on the stock exchange: “Buy one share – and get four!” Or even five. That’s the promise that a few corporations are currently making to their investors. And, of course, the minds of many investors hit this slogan. Especially since it is by no means slow-moving that should be brought to the shareholders here, but on the contrary two of the most popular corporations in the world: It is Apple and Tesla that promise their shareholders more shares for their money from next week.
And who knows, maybe Amazon and Netflix will follow suit soon? “Everyone is talking about it at the moment,” says Wall Street – what is meant is the stock split that the big stock exchanges Apple and Tesla are carrying out. And many other companies seem to be thinking about it too, dividing their shares into smaller denominations.
But these are of course not real discount campaigns, because the stock split means: every investor who has previously owned an Apple share will have four shares in their depot at the beginning of next week, at Tesla there will be five, but the share price will also be quartered or fifth accordingly . This means that the Apple share is no longer worth around 400 euros, as it is now, but only a good 100 euros. And Tesla is then no longer quoted at around 1920 euros (in dollars, Tesla is now quoting above the 2000 mark), but instead stands at around 385 euros.
The total share of each shareholder also remains exactly the same. Seen in this way, the share split is more of a zero-sum game for shareholders. For the companies too, by the way: They may multiply the number of shares in circulation, but basically nothing in their market capitalization changes.
The share looks cheaper after the split
So why are companies doing it anyway? Because such a share split naturally has one effect: every share is cheaper for new buyers. And if an Apple share will only cost 100 euros instead of 400 in the future, then more private investors will probably get on board who want to put the successful share in their custody account as an individual value. This is more likely to be the case with Tesla in particular: Many interested parties will have been deterred recently by the enormous course: Put at least $ 2,000 on a single company whose shares have rotated as much as they did before? Many will have shied away from the risk. But if it’s “only” just under 400 euros, then you can dare to buy it earlier.
The calculation of the companies is therefore: the lower price optically reduces the shares and appeals to a larger number of small shareholders who put the paper in the depot. The group of shareholders is therefore becoming wider for the free float shares. It also tends to stabilize prices if not just a few major investors hold the shares. At least after the split.
In the run-up to the division, however, there are often larger price swings – upwards. That means: the announcement of a split often triggers a small special rally. So it is primarily the existing shareholders who will benefit from the split first.
On a weekly basis alone, Apple shares rose by six percent from 400 euros to 423 euros, and immediately after the split was announced, it rose to 35 euros. Tesla also picked up speed again after the split was announced in mid-August: on August 11, the price was still at 1170 euros. Ten days later it was 1,600 euros, meanwhile the share is also aiming for the 2000 mark in euros. So it almost doubled its value on a monthly basis. It initially took ten years for Tesla to reach 300 euros. Then just under a year until it doubled to 600, then another three months to further doubled to 1200 and since then only a good month except for “almost 2000”. The course is downright exploding. If this continues, the next split will be due soon.
Now Tesla may be a special case. After all, the share achieved what probably no other large corporation on the stock exchange succeeded: The paper has quintupled its value since the beginning of the year. Over the year, the electric car manufacturer even increased by a whopping 880 percent. The reason for this is the good production figures; Elon Musk’s company currently produces around half a million electric cars per year, something that few critical industry observers thought possible some time ago. And the construction of new factories and the planned entry into the energy business give the Californians a further boost. The company is now traded as dearly on the stock exchange as the world’s largest automakers Toyota, Volkswagen, Daimler and BMW put together.
It all depends on the fundamentals
But even Apple – one of the most zealous stock splitters to date – has increased its value faster and faster: In 1999 the computer giant split its shares for the first time, at that time it was worth less than 80 dollars and feared the three-digit number. Until 2015, the Apple share was worth less than 100 euros and only hit the 200 euros mark in 2019. In the meantime, it has shot far beyond that and has more than doubled over the year. Anyone who bet on the Microsoft rival in 1986 and bought 100 shares (for less than 8,000 euros) would have a full 22,400 shares in their portfolio after five split next week. Which would then be worth around 2.24 million euros.
It is such figures that are making the mouths of many small investors watering that they should still buy these two stocks at the lower prices. And again: mind you, it is not the split that actually causes prices to rise in the long term. But it is precisely those companies whose prices soar in a rather uncontrolled manner that like to resort to the split.
At the end of the day, investors must always look at fundamentals to assess whether this stock is worth getting into. In the case of these two stock market giants, however, you can definitely dare to buy at the lower prices. Even if from next week you only get one share for 100 or 400 euros – and not four or five.
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