Apple’s 4 for 1 stock split is set for Monday, August 31 and ahead of it analysts are weighing in on how the move will impact the stock’s share price. While historically AAPL has seen on average a 10.4% increase 12 months after its stock splits, there are a couple of factors that could hint at stronger than average gains for Apple shares this time around.
As we’ve previously noted, Apple’s stock split won’t directly increase its share price but the move normally encourages more investment, leading to post-split gains.
A note from Morgan Stanley’s Katy Huberty, seen by Philip Elmer-DeWitt highlights that leading up to previous stock splits, AAPL growth has normally outpaced the S&P 500 by around 21% but this year that was boosted to almost 44%.
When looking at the 3-6 month period after Apple’s previous stock splits, Huberty notes more modest 6-7% median increases beyond the S&P 500 gains.
In the 3 and 6 months following past stock split, Apple shares have also outperformed the S&P 500, albeit by a lesser degree – by a median of 700bps and 610bps, respectively (1). The most significant post-split outperformance came in C2H14 after the 7-for-1 stock split (2), although this period also coincided with strong outperformance of the iPhone 6.
Like the 2014 split concurred with the iPhone 6, this 4 for 1 stock split comes as Apple is launching the iPhone 12 lineup this fall which has the potential to be very successful. They’ll be the company’s first 5G smartphones and come with an all-new design. AAPL’s best post-split performance was back in 2014 when it increased 36.4% one year after, three times its post-split average.
Nevertheless, we don’t believe the stock-split will be a “sell the news” type of event among institutional investors given the increasing expectations for the fall iPhone launch, and therefore the increase in retail demand following Monday’s stock split is more likely to be a positive catalyst for Apple shares, in our view.
Another factor that could encourage strong AAPL post-split performance is retail traders’ activity being heightened this year amid the pandemic.
Following Apple’s 4-for-1 stock split, we’d expect near-term retail demand for Apple shares to increase, especially given the current market environment (retail traders have accounted for up to 25% of stock market activity during the pandemic vs. 10% in 2019, although we’d note that retail investors have already been able to buy fractional shares, so the overall retail impact may not be as overwhelming as some perceive.
While analysts at eToro noted the average 10.4% increase AAPL shares have seen across all of the company’s stock splits, the firm also found that “…on average, mega brands that have carried out stock splits have seen their shares explode by 33% within the year.”
Time will tell if AAPL will see above-average stock-split growth this time around. What do you think? Will the split push Apple’s strong 2020 stock performance even further? Share your thoughts in the comments below!
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