What Does Apple’s Stock Split Mean? 

A stock split is not a new thing. Hundreds if not thousands of companies have appealed to it to keep the price in the desired trading range and, theoretically, to make the stock more affordable. One of the most recent examples was Apple, announcing the division of its share price by four. It will be achieved by giving three additional shares to each investor.

Not many people know, but its 5th stock split in Apple’s history. The first split for the company took place on June 16, 1987. The proportion, in that case, was 2 to 1, thus for each share of Apple-owned pre-split, the shareholder would own 2 shares. The second split took place on June 21, 2000. Once again, this was a 2 for 1 split. AAPL's third split took place on February 28, 2005, again with a 2 for 1 split. The fourth split was on June 09, 2014. This was a 7 for 1 split. 

Despite the fact that split decisions don’t affect the financial structure of the firm, multiple studies have found that split announcements trigger a positive reaction in share prices. Besides that, corporate stock splits signals a board’s confidence in their company’s prospects and is normally conducted by firms with inflated rather than genuinely high stock prices.

Another study suggests that market reaction to stock splits of small firms is more significant than for medium and large firms during all tick periods. It may be the case that smaller firms’ stock split announcements contain greater information as Grinblatt et al. (1984) documented.

In order to check whether this is true or not, let’s analyze a company famous for splitting its stocks. For that purpose, we will choose Microsoft that had 9 splits throughout its history. As the data suggests, stocks suffered shorts decreases right after the stock split took place, however, later it overpassed previous levels. Still, we should understand that every company is a different world and the reason behind Microsoft’s success is lying in the development of new products.

In the case of Apple, we could speculate saying about management confidence in the company’s future. Is Tim Cook looking to attract Robinhood money? According to the Robinhood app, its trades added more shares of Apple than of any other company.

Derivatives strategist at Susquehanna Financial Group LLLP, Chris Murphy, noticed that Apple options are pricing in more upside risk versus downside than at any time this year, despite the stock has almost doubled from its mid-March lows.

Finally, it is worth noting that the Apple stock split will also affect the Dow Jones industrial average, of which Apple is a member. Because of Apple’s stock price decline from around $400 to around $100, once the split is performed, Apple shares will have less influence within the Dow. Keep in mind that  Apple currently accounts for over 10% of the DJI, and once the stock split takes place, it will make up only 2.5%. As soon as Apple enacts its stock split, UnitedHealth will replace it as having the largest impact on the Dow Jones index.