Apple Inc. (NASDAQ: AAPL) has long been criticized over its ridiculously high share price. With all of the pressure and media coverage that has been coming from activist investor activity, it should be no real surprise that rumors are circulating that Chief Executive Officer Tim Cook may announce a stock split at Wednesday's shareholder meeting.
We have noted just recently how the recent pullback in the stock has still not been enough to alter the stigma of investors and traders. They are still buying and selling stock options in many cases rather than buying the stock on the open market. We would not be surprised to see a higher dividend declared as well, but that would be in lieu of a preferred share rather alongside it.
Here is how the math works. At the current market price an investor has to spend $44,800 just to buy a mere 100 shares of Apple stock. To buy one put or call option contract gives an implied leverage of controlling 100 shares. One March $450 Call option costs $14.35 per contract or a mere $1,435.00 to get the right to own Apple at $450.
We do not like the latest proposal to create preferred shares. it is a distraction and may just be one more vehicle for investors to buy something else other than the common stock. Splitting the stock will help that stigma but the question is by how much. A 2-1 split only takes the price down to an adjusted $224. Our take is that if Apple really wants to split its stock then it should consider a 4-1 or even 6-1 to matter.
The thing that investors have to understand is that simply splitting a stock changes nothing real about the math on sales and earnings. It only makes the numbers smaller. Still, historically investors have loved when they see stock splits even if it is such a 1999 strategy.
Filed under: 24/7 Wall St. Wire, Active Trader, Corporate Governance, Dividends & Buybacks, Options, Rumors, Stock Buybacks, Stock Splits Tagged: AAPL