If you open Yahoo finance or wherever you look at stocks on Monday morning and see that Apple (NASDAQ: AAPL) or Tesla’s (NASDAQ: TSLA) share price has plummeted, remember the advice of famous sci-fi author Douglas Adams:
This is all part of the plan as today is the day that Apple and Tesla’s stock split will occur, with a four-for-one ratio to Apple and five-for-one to Tesla.
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What is a stock split?
If you’re not quite sure what a stock split means, perhaps because you’ve been living under a rock for the past month, it’s quite simple.
- When a stock splits, the share price goes down and the number of outstanding shares goes up.
- If a company splits 5-for-1, such as Tesla, 100 shares at $2,200 per share become 500 shares at $440 per share.
- The company’s market valuation remains the exact same; it simply has more shares outstanding now.
- Splits make stocks more liquid and more affordable to everyday investors.
Apple’s stock split
In the case of Apple, investors are now due to receive three extra shares for every existing share they own. Apple announced its plan for the split on July 30 with its most recent knockout Q2 earnings report.
Meanwhile, the iPhone-maker’s individual share price will fall roughly 75% (as seen in the seemingly frightening image below). Apple closed on Friday at $499.23 with roughly 4.2 billion outstanding shares, which will now rise to more than 12 billion.
Today’s latest split marks Apple’s fifth-ever in its time as a public company; it performed a seven-for-one split on June 9, 2014, and two-for-one splits on June 16, 1987, June 21, 2000, and Feb. 28, 2005.
However, none of these announcements ever had as strong an impact on the company’s stock price. In the exact one month since the announcement, Apple’s share price has jumped more than 17%.
A changing share price isn’t the only change though, as this also shakes up the Dow Jones’ membership. With Apple’s weighting falling from 12% to 3%, Salesforce, Honeywell, and Amgen have been added to the 30-stock index in place of Exxon Mobil, Raytheon, and Pfizer.
Tesla’s stock split
If Tesla investors don’t understand what a stock split is yet, then the image below from Yahoo Finance is really going to give them quite a scare this morning:
Fear not though! In fact, since Tesla announced its five-for-one split on August 11, its stock price has shot up roughly 63% as the growing importance of retail investors — who now make up 25% of the market — became clear.
Tesla shares are now worth $442.68 apiece, having closed on Friday at $2238.75. The electric vehicle leader is on a one-in-a-million run this year, gaining more than 400% year-to-date (YTD) and seeing its valuation close at $409 billion on Friday — the eighth-most valuable company in the U.S.
This run, as well as its record-breaking Q2 results and confirmation that it has achieved a full year of profitability, will likely see Tesla join the S&P 500 soon. Joining a major stock-market index would automatically get Tesla shares into the portfolios of thousands of index-tracking mutual funds, further boosting its already rocketing performance.
What can we expect?
It’s hard to see either of these company’s slowing down any time soon as they ride the wave of bullish investor sentiment. Likewise, each company has its respective product-reveal conferences coming up in September or October which is usually a catalyst for further growth. Although the stock market is already vastly overpriced, it is showing no signs of slowing. Don’t be surprised to see these companies soar another 50% by the end of the year.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.