Company / Analytics

Analytics, 25 August 2020

Apple stock split: should you buy now or wait?

Apple stock has been on a steady climb since March, becoming the most valuable company in the world following its record-breaking third-quarter earnings. On Monday, Apple stock rose to an all-time high of $505 ahead of its stock split, which is meant to make it easier for more investors to own Apple shares. The stock split applies to shareholders on record as at August 24, 2020 (Monday), the share gets split on Friday, August 28, and trading under the split shares starts on Monday 31st August.

What are the implications of the stock split? Is it still a good time to buy Apple stock, or should you wait until after the split?

Background

Following its impressive third-quarter earnings reported in June, Apple rose to become the world’s most valuable publicly-traded company, passing Saudi Arabia’s state-owned oil company Saudi Aramco. Back then, Apple’s market valuation was $1.84 trillion, compared to Saudi Aramco’s $1.76 trillion. Last week, Apple’s market capitalization surpassed $2 trillion, and since then the number has been climbing, reaching around $2.16 trillion on Monday. Again, Apple became the most valuable stock in history after passing Saudi Aramco’s record $2.03 market cap peak, which it reached in December.

Apple shows no signs of slowing, and its highly anticipated 5G iPhone and opportunities in emerging markets are likely just around the corner. Apple’s recent earnings report shows the company weathered the pandemic, delivering revenue of $59.7 billion that came in comfortably above estimates even from earlier this year before analysts slashed their forecasts to account for closed stores, weaker budgets, and other impacts from COVID-19.

The stock split process

Apple’s stock split process began after the closing bell on Monday, August 24. On that day, the company makes a record of shareholders on record whose stocks will be split. Investors on record will receive their additional shares after the closing bell on August 28, and shares will begin trading at the new split-adjusted price on August 31. To buy before now or after the split? What current and potential investors need to know.

The four-for-one stock split will not change the value of any investor’s total holding of Apple, it will just grow the number of shares making up that pot. A 4-for-1 split means that three additional shares of stock are issued for each share in existence on the Record Date of August 24, 2020. So, if as a potential investor you have a set amount of money you want to invest in the Apple, it wouldn’t necessarily matter if you bought the stock now or after the split.

Here is an example:

This is Apple’s fifth stock split since it went public on December 12, 1980, at $22.00 per share. The stock has split four times since the IPO so on a split-adjusted basis, the IPO share price was $0.39. Previous splits have bee a hit with investors. In June 2014, following a seven-for-one stock split, Apple shares were trading at $94. Within a year, share prices had grown nearly 37% to $129.

Future Outlook: will Apple keep growing?

Apple is already behemoth, but many analysts expect the company to keep growing. In the short term, growth will be driven by the upcoming 5G iPhone, which is widely expected to launch this fall. The 5G technology will allow iPhones to connect to the next generation of super-fast wireless networks, a big advancement that could prompt a “supercycle” of consumers upgrading their devices. The technology could further result in greater adoption and use of Apple’s digital services such as Apple Arcade and Apple TV+, which the company increasingly relies on to diversify sales.

Apple has significant room for growth in emerging markets, where it currently holds a much smaller market share of about 8% market, compared to its developed market positions, about 35%, and a global market share of 15%, according to Morgan Stanley analyst Katy Huberty to CNN Business.

The company’s iPhone trade-in program provides it with used devices that can be re-sold, typically in emerging markets for a fraction of the price of new iPhones. Existing Apple device owners have growing incentives to upgrade old devices, growing the trade-in programme. The trade-in programme could expand Apples emerging market share to about 15% by 2023 and global market share to 21%, according to Morgan Stanley analyst Katy Huberty to CNN Business. This would mean a larger consumer base for Apple’s digital services and other hardware products.

According to CNN Business, “37 analysts offering 12-month price forecasts for Apple Inc have a median target of 450.00, with a high estimate of 520.00 and a low estimate of 314.00. The median estimate represents a -10.66% decrease from the last price of 503.67.”

Apple investors have benefited from the most stunning market returns, averaging 28% a year over the last 20 years. Since the start of the year, investors have earned more than 70%. However, as one analyst notes, Apple’s stock has been rising faster than its price-per-share earnings. In five years, the stock has risen from $100 to $500, but during the same period, the per-share earnings have risen only from $9 to $13.

Nonetheless, “the consensus among 41 polled investment analysts is to Buy stock in Apple Inc”, a rating which has remained steady since June.

In summary, analysts think that an investment in Apple now will continue to pay off.

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