Tesla (NASDAQ: TSLA) en Call (NASDAQ: AAPL) recently made headlines when the two companies announced upcoming stock charters in an effort to make their shares available to a larger base of investors. The shares of both companies have risen substantially higher over the past 12 months, partly explaining why a share split made sense to them. Apple and Tesla shares are currently trading at $ 497 and $ 2,050, respectively. Action cards would make the two shares easier for individual investors with smaller amounts of capital to buy.
But how will the two splits of the two companies work? And should investors buy Tesla and Apple stock because of their upcoming split later this month?
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How will the shares be split?
As if the companies were coordinating their stock splits, both Apple and Tesla shares will start on the same day on a split-adjusted basis: 31. Aug. Tesla shares will be split into five, while Apple stock will have a four-for-one split.
What would this look like? The price of the split shares will depend on what the two shares are trading at the time of the split. To illustrate what it might look like, we can use the prices of the two shares today. For every $ 497.48 Apple stock that an investor owns, he or she would now have four $ 124.37 shares. Tesla shareholders would have five $ 410.00 shares for every $ 2,050 share they have at the time of the split.
Shares do not split Apple and Tesla better investments
Given the rising prices of the two stocks since their recent stock splits were announced, a novice investor might mistakenly believe that stock split stocks are fundamentally more attractive. But this is not the case. The total market value of a company is the same whether its shares are split or not. Here’s another way to think about it: the value of an individual investor will not change because of a share split – they will simply have more shares at the new, split-adjusted price.
Sure, a case could be made for a potential walk in demand for Apple and Tesla shares because retail investors with smaller sums of capital flock to buy shares after their split. But smart investors know that, in the long run, a share price will ultimately be driven by the underlying performance of the company. Therefore, if stocks rise to irrational levels due to a split of a stock, some investors may be asked to sell the stock and take profits, eventually balancing demand.
There is no telling which direction Apple and Tesla shares will trade in the coming weeks. Investors should stay focused on the underlying stocks of the two stocks, their potential term and values.
