Did Apple make the right choice of splitting the stocks?

Did Apple make the right choice of splitting the stocks?

The effect of the stock split will reverberate in USA30.

After a quarter that beat analysts’ expectations, Apple announced that it would do a 4-for-1 stock split. Though this could have been excellent news for investors, experts believe otherwise given the current global situation.

Usually, a stock split is a clear bullish indicator that the company expects its stock to perform well in the long-term. According to studies, a two-for-one stock split had a 7.9% increase in one year, and within three years after the split, it added 12.2%. However, the effect diminished in the past years as the large institutions dominating the market can afford to buy the stock at a high price. Moreover, small investors can now buy a fraction of a stock, so the high price doesn't affect them.

Lately, stock splits have become few and far between, dropping from an average of 10 per year to three, according to S&P 500 sources.

The company’s four-for-one split would be the second, as it had another stock split in 2014. Although Apple considers it to be a move made to facilitate investor’s access to the stock, its influence within USA30 could decrease. Within USA30, the impact of a company is measured by the share price. Since 2015 when Apple was added to the index, it gained 230%, which, by extension, drove USA30 higher. At the moment, Apple represents roughly 10% of USA30, but after the split, it will only account for a fourth of it. The possible gains and losses will have a smaller impact on index performance.

However, the split won't affect USA500 because it is based on a company's market cap.

The question remains if the stock price would increase more because of its split than otherwise.

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Sources: reuters.com, marketwatch.com

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