Apple's stock split is cause for confusion

Is Apple set to attract the wrong kinds of investors with its seven-to-one stock split?

Tags: Apple Incorporated
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Apple's stock split is cause for confusion While the move is a curious one for Apple, it's certainly a good thing for would-be investors
By  Tom Paye Published  April 24, 2014

As well as exceeding analyst expectations with strong second-quarter results, Apple has made headlines this week by introducing an unprecedented seven-to-one stock split.

Essentially it means that every one stock - which currently trades around the $530 mark - will now trade for a seventh of that, around $75. Apple said that the move was aimed at getting a broader range of investors on board, ones who want to be able to dabble without having to shell out thousands of dollars.

On a FAQ page for investors, Apple provided an example of how the split will work.

"Let's assume that as of the Record Date (June 2, 2014) an investor owns 100 shares of Apple common stock and that the market price of Apple stock is $490 per share, so that the investment in Apple is worth $49,000. Let's also assume that Apple's stock price doesn't move up or down between the Record Date and the time the split actually takes place," the company wrote.

"Immediately after the split, the investor would own 700 shares of Apple stock, but the market price would be $70 per share instead of $490 per share. The investor's total investment value in Apple would remain the same at $49,000 until the stock price moves up or down." 

To big investors, dealing in millions of dollars, the move won't make much difference, so this is a psychological move aimed at making the company's shares more accessible to smaller investors. It could be you or me that the company is reaching out to.

And while the rationale makes sense, it's certainly a curious move.

For one thing, by its very nature, the split increases liquidity in the stock. This makes it easier for people to get into buying Apple stock, but the flipside of that is that people will also be able to get out more easily.

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