Will Apple and Tesla make stock splits great again?
Article content continued
“I can’t recall them commenting on a stock split or considering it in any way,” Romanoff said.
A reason why Shopify may want to keep its current price level, he said, is to actually avoid some retail investors, particularly day traders, so that the stock can be a little less volatile.
One positive for companies to consider is the immediate boost to share prices that an announcement has proven to generate. Apple is up nearly 20 per cent since it announced the split. Tesla is up more than 18 per cent.
A split doesn’t alter the value of an investment. What it does do is drive up more interest from investors who believe that once Apple’s stock is split and begins to trade near US$100 again, the group of retail investors that bemoaned their ability to buy shares at levels above US$400 will finally have their chance.
“It’s a psychology thing,” Yarbrough said.
According to Nasdaq chief economist Phil Mackintosh, large cap stocks that have issued splits between 2012 and 2018 outperformed by 2.5 per cent directly after the announcement and an additional 2.5 per cent over the 12 months after the split was performed.
“When a stock becomes harder to trade it trades at a discount to what its optimal valuation is,” Mackintosh said. “I hope (stock splits) are back. We’ve done a bunch of research that shows it’s in the companies’ best interests.”
Mackintosh pointed to widening spreads — the difference between the bid and the offer — as a problem that can be addressed with stock splits. Spreads are wider for higher-priced stocks, Mackintosh said; the more this is the case, the more it eats into returns. Splitting a stock brings spreads back into check and improves the tradeability of stocks, he said.