Apple Inc Stock Split Decision May Cause Dramatic Fall in Stock Price to Below $100 Theoretically
After surprising investors with its better-than-expected revenues for Q2 FY 2014, Apple Inc has set aside an additional $30 billion for stock buybacks through 2015. The latest stock repurchase announcement will make the company's total buyback to $90 billion.
Aside from surpassing revenue and iPhone sales expectations, Apple has raised its quarterly dividend by 8 per cent at $3.29 per share from the previous $3.05 per share. The additional stock buyback came after investors have expressed their worries about Apple Inc's future since the passing of its co-founder and chief visionary Steve Jobs. Mr Jobs, who died in October 2011, has left the fate of the company in the hands of his trusted friend and ally, Tim Cook. Apple investors are also worried about Samsung's increasing smartphone market share.
The company's stronger-than-expected iPhone sales boosted its March quarter revenues. In Apple's official earnings call on April 23, it revealed it had sold 43 million iPhones and 16 million iPads.The company also reported it earned $10.2 billion in profits, surpassing Apple's internal quarter guidance and Wall Street expectations. Wall Street predicted Apple to report $43.5 billion in revenues for the March quarter.
Despite analysts' anticipation of an additional stock buyback announcement from Apple, the stock split was a surprise to them. The stock split will be completed on June 9 and Apple's stock price is expected to fall dramatically. According to analysts, if the stock split happened on April 23 with a closing price of $524.75, Apple stock would be trading at $75.
With this low price per share, more people can afford to buy shares. In theory, this will create strong demand for Apple stock which becomes a major driver to push the price of stock back up again. In another theory, Apple's increasing investment in its own shares may also increase the value of stock by reducing the total number of outstanding shares. Since the outstanding shares are reduced, it could lead to an increase in EPS or earnings per share which in turn raises Apple's value as a company.
Apple Inc's market value is currently $470 billion which makes the company the most valuable more than any other publicly traded corporation.