Last Thursday I predicted that Apple stock would pass the psychological $500-a-share milestone by the end of this week. It just happened, earlier this morning, when AAPL hit $503.47. It has dropped back under $500 for the moment but I am confident we will see a $500+ close this week.
Most commentators, including Asymco’s Horace Dediu, have said for months that the price of Apple does not adequately reflect the performance, profitability and prospects of the company. Especially after last quarter’s surprisingly robust results. Now there are rumours of a stock dividend, something unheard of since the second coming of Steve Jobs in 1996. Nothing gets the buyers out like the whiff of a bit of cash in hand. Certainly with $100 billion in the bank, Apple could well afford to lay out a few fishes for the multitude.
There is something else Apple could do to boost the share price: a stock split. $500 is a pretty hefty price tag even in the USA, where stocks are traditionally highly priced. Here in England we price our stocks in pence and most listed companies have a much lower price per share. 1000 pence or £10 is looked on as a high price and only a very few stocks run with prices over £20. It’s the same in most countries, yet the US likes its high values.
So here we are with one Apple share costing the same as an iPad¹. Pretty soon you’ll be able to buy a low-end MacBook Air for the price of one share. That is, unless Apple does a stock split, which means offering existing shareholders extra free shares in order to bring down the price. Then, for a time, Apple will look “cheap” and this will encourage buying, particularly among less sophisticated investors who don’t do their sums.
The last Apple stock split was a 2-for-1 on 11 February 2005 and the previous one was also a 2-for-1 on April 19 2000. You have to go way back to 1987 for the original 2-for-1. As you see, if you held ten Apple shares at the beginning of 1987 you would now own 80. In 1987 your ten shares would have been worth $500 while today your equivalent 80 shares would be worth $40,000.
Now, just to humour me, imagine if you had resisted that powerful Apple IIGS in 1987 and, instead, bought 20 shares in Apple, Inc. Yes, you got it (or would have if you’d kept the resulting 160 shares), a cool $80,000.
I am now predicting that Apple will announce another 2-for-1 this year. It will bring the stock price down to the more manageable $250-$350 range (assuming the price continues to rise in the immediate future). It would be a wise move, in my opinion, which would have the effect of making AAPL more popular among private investors.
¹ Next time you are tempted to run down to the Apple Store for a new iPad or MacBook Pro, reflect on the fact that you would always be better visiting your stockbroker and buying one or two Apple shares instead. As long as everyone doesn’t follow my advice, it’s a no-brainer.