This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Apple's Stock Split Is Gift to Retail Investors

Stocks in this article: AAPL

NEW YORK (TheStreet) -- Contrary to financial theory, Apple's  (AAPL) 7-for-1 stock split has the potential to increase the company's valuation.

Apple announced the 7-for-1 split Wednesday, at the same time it said it had increased its stock buyback authorization to $90 billion from the $60 billion announced last year. The Cupertino, Calif.-based company is also increasing its dividend.

The stock split will apply to investors who hold shares as of June 2. They'll receive six additional shares for each share held. The stock will begin trading on a split-adjusted basis on June 9.

The move, which should reduce the company's stock price from the $550 range to around $75, follows calls for Apple to broaden the company's stock appeal for individual investors.

Financial theory states that changing the number of shares outstanding for a company does nothing to its valuation, but a common-sense view of Apple's current situation supports the idea that the stock split could benefit Apple's valuation.

The cheaper stock price will allow retail investors to now trade Apple stock in 100-share blocks. Most brokerage firms give discounts to investors who trade in blocks.

Previously, a block of Apple shares would have cost more than $50,000, putting it out of reach for most small investors. With the stock split, however, the block would cost less than $10,000.

The lower price would give access to a larger portion of the market, potentially increasing trading volumes and decreasing the bid-ask spread.

What's more, stock splits can spur investor confidence.

They tend to occur when a company's stock price has grown considerably due to strong performance over the past few months or years. Apple had a massive run-up from $80 in 2009 to more than $700 in 2012, and has settled at more than $500.

The split sends the message that the company is moving on from old successes, restarting at less than $100 a share, and that strong performance in the future could lead to another huge gain.

Fundamental analysts say Apple's stock split is arbitrary, but the world of equity trading is as much about investor perception as it is about sales and profit margins.

Only time will tell whether Apple's financial engineering at the hands of CEO Tim Cook will benefit the company's shares as much as product hype and sales have helped them in previous years.

AAPL Chart
AAPL data by YCharts

At the time of publication, the author had no positions in stocks mentioned.

Follow @macroinsights

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs