Apple recently published their third-quarter earnings where they announced a four-to-one stock split, something they haven’t done since 2014. But if you’ve never bought or sold stock, then you may be wondering what all this means and why people are making such a big deal about it. And that’s exactly what I’m going to explain.
If you’re trying to buy stock in a company, which is essentially just a piece of ownership, you have to purchase what are called shares. And the price of one share varies quite a bit between companies and changes every day. For example, a share in IBM costs one hundred twenty four dollars and nineteen cents as of this moment. While buying one share of Google would cost one thousand four hundred sixty eight dollars and forty three cents.
There are pros and cons to having both high or low share prices, but let’s focus on Apple’s situation. Their stock has been growing steadily in price for the last five years, from about one hundred dollars to over four hundred dollars for one share. While that’s good, since means Apple is worth more than ever before, it also means not as many people can afford to buy as many shares as they used to. That may not be a problem for big money investors like Warren Buffet, but it could be a problem for average traders who typically prefer to own shares in even amounts of at least 100. And since buying 100 shares of Apple stock has increased from $10,000 to over $40,000 in the last five years, there are less people who can afford to buy it. And less people trading your stock means less liquidity for the company.
So to make their stock more affordable and therefore encourage more people to invest, Apple decided to quadruple the amount of shares they’re selling. But that doesn’t mean the company quadruples in value. Instead, each individual share is worth a quarter of what it was before. If you already owned 100 shares of Apple stock, you would receive 300 additional shares, for a total of 400. That way, the value of your investment in Apple wouldn’t be effected, only the quantity of shares you own.
Now some big money investors have spoken out against Apple’s stock split. Claiming that by making their shares more affordable it would attract day traders just trying to make a quick profit. Which could cause the value of Apple’s stock to experience more dramatic swings than before. But with Apple’s financial performance only improving year after year, it appears interest in buying their stock will only grow, and contribute to rising share prices in the future.