Rumors are swirling that Apple, a company which has been having a rocky time on Wall Street lately despite reporting their most profitable quarter ever, might announce a decision to issue a stock split tomorrow at their next shareholder meeting, to be held tomorrow.

The source of the rumor appears to be a tweet from investor and analyst Douglass Kass, who says that :

High above the Alps my Gnome is hearing a rumor that Apple will announce a stock split at tomorrow’s shareholder meeting.

A stock split is when Apple decides to increase the number of shares in circulation by issuingexisting shares of outstanding stock to current shareholders. In a 2:1 stock split, for example, every share of AAPL an investor had would become two, each worth exactly half what a single share was worth previously.

Why would Apple split its stock? Traditionally, stock is split when it is becomes significantly more expensive than the stock of competing companies, but it’s unclear if that’s what is happening here. Apple stock, in fact, seems completely undervalued compared to Google, which is currently trading at $ 793.20 a share.

As Investopedia explains, “The bottom line is a stock split is used primarily by companies that have seen their share prices increase substantially.” But that’s not what has happened here. AAPL stock is, in fact, down almost 40% in the last six months. So what’s really going on?

Over at Seeking Alpha, one commenter speculates:

Everyone knows that stock splits add zero to the basic financials of a company. However, a reasonable stock split can have a very positive psychological impact on the value of a companies stock – especially a significantly under-valued stock like where Apple stock is at present, IMO.

In other words, if this rumor is true, it’s a measure only meant to raise market confidence in Apple… and it would appear to indicate that Apple’s higher ups are, despite assurances to the contrary, very worried about how Apple is performing on the Street.

Source: Business Insider

Permanent Link