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Investors may be forgiven for thinking Apple Inc. and Tesla Inc. are about to make stock splits great again, but analysts covering other high-priced names say it’s unlikely other companies will follow suit and revert to an old trend that died out after the financial crisis.
The two high-flying tech companies announced that they will be splitting their stocks in quick succession of another. Apple was the first, revealing at the end of July that it would be issuing a 4-to-1 split. Less than a fortnight later, Tesla said it would proceed with a 5-to-1 split.
The decisions surprised investors because while splits used to be a regular occurrence in the market, they’ve petered out to levels approaching near-zero in recent years. Only two occurred in 2017 on the S&P 500 and prior to Apple and Tesla, only two were announced in 2019. That’s in comparison to the 93 that happened in 1997. By 2004, that number fell to 37 and 10 years later in 2014, there were only 10. Instead of splitting stocks, it’s become commonplace to see a share of the top tech names on the market such as Tesla, Alphabet Inc. and Amazon.com Inc. trade in excess of US$1,000.
Companies would traditionally split their stocks for two reasons. They’d do it in one case if they were struggling with share liquidity and in another to appeal to retail investors, who shy away or are simply priced out of stocks when they surpass the $200-per-share level. For example, young investors may only have portfolios worth $5,000 and buying one share of Amazon isn’t feasible for them because it would take up 84 per cent of that sum after currency conversion.