Stock split leads to radical change in Apple share price overnight

A RADICAL move at the world’s premier tech company caused shares to drop from around $US650 to less than $US100 overnight. What’s happening?

APPLE’S share price has fallen from around $US650 to around $US100, after the company split its stock for the first time in nine years.

The move was designed to make it more affordable to buy shares in the tech giant, and it provided a boos for the company even before it was completed.

Since the split was announced in late April, Apple's stock has climbed 25 per cent, creating more than $US100 billion in shareholder wealth while the Standard & Poor's 500 edged up just 4 per cent.

Other factors contributed to the Apple rally: The company raised its quarterly dividend, committed an additional $US30 billion to buying back its stock, struck a $US3 billion deal to buy headphone maker Beats Electronics and previewed its latest software for iPhones, iPads and Mac computers.

But the stock split helped renew investor interest in Apple Inc., already the world's most valuable company.

Attendees gather at the Apple Worldwide Developers Conference in California.

THE SPLIT COULD ATTRACT MORE INVESTORS.

The reason has more to do with psychology than logic. Splits lower a stock's trading price by substantially increasing the number of outstanding shares. Even though the company's market value remains the same, the prospect of a lower price per share often excites investors who previously shied away from a stock because it looked too expensive.

Companies executing splits hope to attract more buyers by making the stock appear more affordable.

Apple executed a 7-for-1 split. That means every Apple stockholder received six additional shares for every share they owned as of June 2. The distribution will increase Apple's outstanding stock from about 861 million shares to about 6 billion shares.

To adjust for that swing, Apple's stock price fell dramatically from Friday's closing price of $US645.57 to $US92.22. On Monday, the shares rose $US1.48 to close at $US93.70.

Seattle Seahawks' Richard Sherman wears Beats headphones. Beats was purchased by Apple earlier this year.

... AND BRING APPLE MORE PRESTIGE

Although it's unclear if this was Apple's intent, the lower price could clear the way for the company to be included among the 30 stocks in the Dow Jones industrial average. The closely watched benchmark is supposed to mirror key sectors of the economy, a role that seems perfectly suited for Apple given the popularity of the company's products and its $US171 billion in annual revenue.

But Apple's high stock price in the past made it impractical to include the company in the Dow. This is because if a company with a high stock price, such as Apple, fluctuated wildly, it could influence the whole Dow value. The method has discouraged the Dow Jones selection committee from picking companies with stock prices trading at more than $US300. Visa Inc. is the only Dow Jones company with a current stock price above $US200.

Whether Apple will now make it into the Dow Jones is the “$US3 trillion question,” says Howard Silverblatt, senior index analyst for S&P Indices.

Since announcing the split Apple shares have soared 20 per cent.

SPLITS ARE FALLING OUT OF FASHION

Stock splits once seemed reflexive whenever a company's share price neared $US100. In recent years, though, splits have dwindled as companies became more comfortable allowing their stocks to trade for hundreds of dollars.

Even though the overall stock market has been soaring, only 57 splits have been completed since 2009 among companies in the Standard Poor's 500. That compares with 375 splits from 1997 through 2000, a period that coincided with the dotcom boom.

THIS ISN'T APPLE'S FIRST SPLIT

Apple has completed 2-for-1 splits on three previous occasions: May 1987, June 2000 and February 2005. The stock rose 2 per cent in the first year after the 1987 split and surged by 60 per cent in the first year after the 2005 split. The shares plunged 57 per cent in the first year after the 2000 split, which occurred amid a steep downturn in technology stocks.

YOU'LL NEED TO ADJUST THE BAR

Before the split, the highest high for Apple's stock stood at $US705.07. With the split, that peak has now been revised to $US100.72. Apple went public in December 1980 at a split-adjusted 39 cents per share.

Originally published as Stock split leads to radical change in Apple share price overnight