You need a PLUS account to view this content. Try one month of PLUS for FREE.
Already have an account? log in
Split Decisions
I shouldn't have to say this, but there's nothing fundamentally bullish about stock splits.
Wait. Let me qualify that. To the extent the split's an effort to make it easier for smaller investors to afford shares following a run-up in the share price, and that run-up was itself the result of some fundamental catalyst, then I suppose you could argue the stock split's fundamentally bullish.
Outside of that somewhat tortured logic, a stock split's just a math exercise. I bring this up for obvious
Correct. While there can be a short-term improvement in a firm’s stock price following a split, the market will eliminate that fleeting alpha in the mid-term. The myriad headlines generated by the recent behavior of the fabulous seven or whatever they are called these days, are mostly folks who really don’t understand what a firm’s market cap actually means, which is nothing in particular, by the way. There is no connection between any firm’s market cap and its balance sheet, income or cash flow statement. The market cap is owned collectively by the “punters” who bought their stock at the big stock market garage sale. Those are taking the ultimate risk because there will inevitably be a top price which will turn out to be the bag of snipes held at dawn by the unlucky losers. Nothing happens to the company when market caps go up and down. The C-suite option holders won’t be too happy if they have waited to buy. Their 401(k)s will deflate as surely as a kid’s birthday balloon. Companies with inflated stock prices can take advantage of their values if they issue new stock or use un-retired treasury stock as a substitute for currency in an acquisition but otherwise market cap is not spending cash, an asset, or anything else associated with the company’s business.