for Investment Promotion
Split - what is it?
The term "split" comes from the English "stock split", which literally translates as "splitting, division of shares." The process involves increasing the number of securities in circulation by reducing their value.
For example, PJSC (Public Joint Stock Company) announces the splitting of its shares, setting a ratio of 3: 1. This means that the market value of the security will decrease threefold, and their number, respectively, will increase 3 times. At the same time, the capitalization of the enterprise and the total value of the asset held by the investor remain unchanged.
How does this happen in practice?
If the stock market trades 30 thousand shares of company "A", worth 300 hryvnias each, the total capitalization of the company is 9 million hryvnias. During the 3: 1 split, the number of shares will be 90 thousand, and the value of each will be 100 hryvnias. At the same time, the total capitalization of the enterprise will remain at 9 million hryvnias.
If the investor owned 10 shares worth UAH 3,000, after splitting he will have 30 securities, and their total value will remain UAH 3,000.
Why do companies hold a split?
Crushing is done primarily to increase demand for the company's shares. If in one industry the value of securities of any company becomes several times more expensive than competitors, then private investors "can not afford" to buy their assets. In this case, demand falls, which leads to lower prices and, consequently, lower capitalization of the company.
For example, if one share of the company costs 150 thousand hryvnias, then most small investors simply will not be able to buy and replenish their investment portfolio. The rest of the investors will want to buy securities of several other companies with similar parameters of financial stability for this amount.
Fragmentation of shares allows you to partially or completely reduce the risk of falling prices. In this way, the company prevents the reduction of its capitalization.
What are the consequences of split?
After the splitting of shares, their value decreases, which, in turn, leads to increased interest from investors. If the demand for securities increases, their price also increases.
The company receives:
- inflow of additional investments;
- increase the control package.
After the split, the value first decreases, and the owners of a larger package during this period buy shares from holders to strengthen their positions.
Information about the intention to crush is not advertised in advance. Therefore, investors cannot predict or predict the split.
How did Apple and Tesla use the split?
In the case of Tesla and Apple, the companies split 4: 1 and 5: 1, respectively. This procedure was announced in a month. Investors were given the opportunity to prepare to start buying assets after the split.
If you consider this situation in terms of earnings on it, it opens a very small window in time. Because of this, it is more like speculation: to buy securities on August 31 and sell on September 1, earning a small percentage on the deal, after which shares began to fall.
But here is an additional opportunity to wait for the correction of the paperwork and make a long-term investment of 3 months. Such an investment can bring much more profit, as companies grow steadily, pay dividends and can show an increase of up to 50% of current value over six months.
Do you need a split at all?
In general, the split is interesting and useful for investors after it.
Don't buy stocks before the split and hope that you can make a decent living on it! As practice shows, in such situations only lose. But if you wait for the split and then buy - it's a smart approach!