Endangered species on Wall Street: The stock split

Fri Nov 20, 2015 12:47pm EST
 
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By Chuck Mikolajczak

NEW YORK (Reuters) - The U.S. stock market has more than tripled in value since its March 2009 lows but stock splits, a tool favored by company management in prior boom times, have yet to make a comeback.

Stock splits are a way for management teams to tempt retail investors to buy a "hot" stock at a lower price.

For example, high-flying Apple Inc (AAPL.O: Quote) shares proved much more popular at $100 each after a 7-for-1 split in June 2014 than they were at $700, even though their value, by all measures, remained constant.

But now companies like Priceline, selling at a share price near $1,300, and Amazon.com (AMZN.O: Quote), which last split in 1999 and trades at about $660, are resisting similar moves.

The lack of enthusiasm for splits may be a sign of lower confidence among management teams given today's lower growth environment, and a trend towards stock buybacks.

"It’s kind of gone out of fashion," said Stephen Massocca, chief investment officer at Wedbush Equity Management LLC in San Francisco.

With weaker earnings performance now than a decade ago, managers may be unwilling to dilute the number of shares they trade lest the split backfires and the share price becomes too low to sustain solid trading and valuation metrics, analysts say.

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The New York Stock Exchange is pictured in the Manhattan borough of New York, September 21, 2015.  REUTERS/Carlo Allegri