It was 1999, on a Long Island Railroad late one afternoon, and I remember the scene vividly. This lout is on his cell phone, talking loud enough for everybody to hear: "Do you have Sun? I got Sun. It just split again today. Life is goooooood!"
We all wanted somebody to cold-cock the jerk, but being good suburbanite commuters, we mostly just rolled our eyes. Or seethed for missing out on one of the biggest Internet bubble stocks.
That memory came back as Apple aapl +0.73% Apple Inc. U.S.: Nasdaq $571.94 +4.17 +0.73% April 25, 2014 4:00 pm Volume (Delayed 15m) : 13.67M AFTER HOURS $571.08 -0.86 -0.15% April 25, 2014 7:59 pm Volume (Delayed 15m): 272,987 P/E Ratio 13.59 Market Cap $492.66 Billion Dividend Yield 2.30% Rev. per Employee $2,187,330 04/26/14 HTC Design Chief to Step Down 04/25/14 Apple Will Fix Faulty iPhone 5... 04/25/14 U.S. Appeals Court Issues Mixe... More quote details and news » (ticker: AAPL) announced a 7-for-1 split of its stock Wednesday. And those times apparently resonate with David Einhorn, head of hedge fund Greenlight Capital, who declared Tuesday, "we are seeing our second tech bubble in 15 years."
To be sure, he says this bubble is "an echo of the previous bubble," he added, when big-cap tech stocks such as the former Sun Microsystems or Cisco csco -1.41% Cisco Systems Inc. U.S.: Nasdaq $23.00 -0.33 -1.41% April 25, 2014 4:00 pm Volume (Delayed 15m) : 24.68M AFTER HOURS $22.98 -0.02 -0.09% April 25, 2014 7:46 pm Volume (Delayed 15m): 402,929 P/E Ratio 15.03 Market Cap $118.48 Billion Dividend Yield 3.30% Rev. per Employee $637,890 04/25/14 Snowden Boosts Non-U.S. Tech V... 04/24/14 Cisco CSO: Cyber Threats Refle... 04/24/14 Microsoft, Google, Other Tech ... More quote details and news » (CSCO) commanded massive price-earnings multiples. The current symptoms include rejection of "conventional valuation methods," short-sellers being forced to capitulate and big first-day pops for initial public offerings from companies that "have done little more than use the right buzzwords and attract the right venture capital."
Apple's stock split also brings back memories of partying like it was 1999. (Sorry for the cliché, but it's still a great song, almost as good as Prince's other classic, Little Red Corvette.) Splits were all the rage back then, even though they're the equivalent of giving two fives for a ten. Rational or not, a company management's declaration of a stock split is an implicit vote of confidence they think the shares are headed still higher.
And rational or not, I imagine karma came back to bite the Sun bull back then. After two 2-for-1 splits in 1999, the stock ended the year at over $250 a share. By the end of 2000, it was $55 and change, and plunged to three bucks in 2002 after the tech bubble burst, a loss of about 98% from the peak. Sun wallowed in the mid-single digits, until a 1-for-4 reverse split in 2007, before being acquired by Oracle orcl -0.75% Oracle Corp. U.S.: NYSE $39.45 -0.30 -0.75% April 25, 2014 4:00 pm Volume (Delayed 15m) : 11.52M AFTER HOURS $39.63 +0.18 +0.46% April 25, 2014 6:24 pm Volume (Delayed 15m): 130,351 P/E Ratio 16.30 Market Cap $175.90 Billion Dividend Yield 1.22% Rev. per Employee $315,842 04/23/14 Facebook Closes in on Google i... 04/15/14 AHEAD OF THE TAPE: IBM Needs t... 04/13/14 Vietnam's FPT Aims to Fill IT ... More quote details and news » (ORCL) for $9.50 in 2010.
Apple's stock popped nearly 8% in after-hours trading Wednesday in the wake of the news of the split and, much more substantively, better-than-expected earnings, and boosts in its dividend and share repurchases, as Barrons.com tech maven Tiernan Ray detailed.
But does this herald a new wave of 1990s-style splits among high-flying tech stocks? Priceline Group pcln -4.91% Priceline Group Inc. U.S.: Nasdaq $1157.24 -59.79 -4.91% April 25, 2014 4:00 pm Volume (Delayed 15m) : 1.38M AFTER HOURS $1158.50 +1.26 +0.11% April 25, 2014 7:48 pm Volume (Delayed 15m): 14,886 P/E Ratio 31.23 Market Cap $60.51 Billion Dividend Yield N/A Rev. per Employee $715,085 04/11/14 Riding the Tech Roller Coaster 04/09/14 Tech Shares Lead U.S. Stocks H... 04/08/14 Google Checks In to the Hotel ... More quote details and news » (PCLN) fetches over $1200 a share, although it had a 1-for-6 reverse split in 2003 following the tech collapse. Amazon amzn -9.88% Amazon.com Inc. U.S.: Nasdaq $303.83 -33.32 -9.88% April 25, 2014 4:00 pm Volume (Delayed 15m) : 15.94M AFTER HOURS $302.30 -1.53 -0.50% April 25, 2014 7:59 pm Volume (Delayed 15m): 243,130 P/E Ratio 474.73 Market Cap $139.81 Billion Dividend Yield N/A Rev. per Employee $666,019 04/25/14 Exit From Tech Shares Leads U.... 04/25/14 Amazon's Never-Ending Story--H... 04/25/14 LivingSocial Sales Slip Furthe... More quote details and news » (AMZN) trades over $300 a share, among various other triple-digit tech stocks.
But splits have largely fallen out of fashion. That excludes Google, whose split into two share classes ( GOOGL googl -2.12% Google Inc. Cl A U.S.: Nasdaq $523.10 -11.34 -2.12% April 25, 2014 4:00 pm Volume (Delayed 15m) : 2.32M AFTER HOURS $524.10 +1.00 +0.19% April 25, 2014 7:58 pm Volume (Delayed 15m): 47,753 P/E Ratio 28.50 Market Cap $378.51 Billion Dividend Yield N/A Rev. per Employee $1,281,850 04/25/14 Clashes Over Power Threaten $3... 04/25/14 Google Hit With Huge French Ta... 04/25/14 Heard on the Street: Baidu's P... More quote details and news » and GOOG goog -1.71% Google Inc. Cl C U.S.: Nasdaq $516.18 -8.98 -1.71% April 25, 2014 4:00 pm Volume (Delayed 15m) : 2.06M AFTER HOURS $517.00 +0.82 +0.16% April 25, 2014 7:59 pm Volume (Delayed 15m): 33,017 P/E Ratio N/A Market Cap $378.51 Billion Dividend Yield N/A Rev. per Employee $1,281,850 04/25/14 Microsoft Plots Original TV Sh... 04/25/14 The FCC's 'Reasonable' Interne... 04/25/14 Wells Fargo to Start Webcastin... More quote details and news » ) with different voting rights is another matter altogether. Even afterwards, the two shares each fetch over $500, which would be equivalent to quadruple digits before the distribution of non-voting shares. According to the Wall Street Journal, only 11 companies in the Standard & Poor's 500 had announced splits in 2013.
Even rarer are splits as big as Apple's 7-to-1 change, especially in recent years. It seems a matter of fashion. Triple-digit stock prices perhaps are viewed as something to brag about, like exalted house prices. Perhaps it's Warren Buffett's influence; Berkshire Hathaway's A shares brka +0.10% Berkshire Hathaway Inc. Cl A U.S.: NYSE $190686.00 +186.00 +0.10% April 25, 2014 3:59 pm Volume (Delayed 15m) : 233 P/E Ratio 16.09 Market Cap $313.68 Billion Dividend Yield N/A Rev. per Employee $581,050 04/25/14 NTT Docomo to exit India with ... 03/21/14 Media General to Pay $1.6 Bill... 03/19/14 Marketwired In Deal With New Y... More quote details and news » (BRKA) trade over $190,000 each, while the B shares brkb +0.24% Berkshire Hathaway Inc. Cl B U.S.: NYSE $127.26 +0.31 +0.24% April 25, 2014 4:01 pm Volume (Delayed 15m) : 2.69M AFTER HOURS $127.40 +0.14 +0.11% April 25, 2014 6:38 pm Volume (Delayed 15m): P/E Ratio 16.11 Market Cap $313.68 Billion Dividend Yield N/A Rev. per Employee $581,050 04/24/14 Competition? Colgate-Palmolive... 04/23/14 Buffett Can't Find Bear for Be... 04/17/14 Nuggets of Corporate Governanc... More quote details and news » (BRKB) are over $127. In the 1990s, by contrast, speculators sent stocks that split soaring, in the expectation that cheaper per-share prices would attract even more buyers.
Of course, none of it is rational. Institutions, which dominate the market, are indifferent between buying millions of shares of low-priced stocks or thousands of shares of high-priced stocks.
Howard Silverblatt of S&P Indexes helpfully provided a list of big splits among S&P 500 companies since 1980, with MasterCard ma -4.96% MasterCard Inc. Cl A U.S.: NYSE $70.66 -3.69 -4.96% April 25, 2014 4:00 pm Volume (Delayed 15m) : 9.58M AFTER HOURS $70.70 +0.04 +0.06% April 25, 2014 7:56 pm Volume (Delayed 15m): P/E Ratio 27.46 Market Cap $82.86 Billion Dividend Yield 0.62% Rev. per Employee $1,017,320 04/24/14 Visa Posts Higher Profit 04/21/14 Mobile-Payments Startup Square... 04/17/14 MasterCard CEO Ajay Banga's 20... More quote details and news » (MA) being the largest, recent example, with a 10-for-1 distribution in January. The only splits that come close in the current decade are CME Group's cme -0.72% CME Group Inc. Cl A U.S.: Nasdaq $70.39 -0.51 -0.72% April 25, 2014 4:00 pm Volume (Delayed 15m) : 774,576 AFTER HOURS $70.38 -0.01 -0.02% April 25, 2014 4:54 pm Volume (Delayed 15m): P/E Ratio 24.09 Market Cap $23.64 Billion Dividend Yield 2.67% Rev. per Employee $1,074,980 04/14/14 Futures Traders Sue CME Over R... 04/09/14 Soybean Prices Reach Eight-Mon... 04/08/14 Technical Glitch Hits CME Trad... More quote details and news » (CME) 5-for-1 split in 2012 and the 4-for-1 splits by Salesforce.com crm -3.53% Salesforce.com Inc. U.S.: NYSE $52.80 -1.93 -3.53% April 25, 2014 4:00 pm Volume (Delayed 15m) : 5.28M AFTER HOURS $52.79 -0.01 -0.02% April 25, 2014 7:47 pm Volume (Delayed 15m): P/E Ratio N/A Market Cap $32.21 Billion Dividend Yield N/A Rev. per Employee $306,090 04/07/14 SAP Makes Key Product Availabl... 03/28/14 Maynard Webb on His Investment... 03/25/14 HEARD ON THE STREET: Box Boxed... More quote details and news » (CRM) and VF Group vfc +2.21% VF Corp. U.S.: NYSE $61.44 +1.33 +2.21% April 25, 2014 4:04 pm Volume (Delayed 15m) : 2.98M AFTER HOURS $61.44 0.00 0.00% April 25, 2014 4:25 pm Volume (Delayed 15m): P/E Ratio 21.73 Market Cap $27.06 Billion Dividend Yield 1.71% Rev. per Employee $196,195 04/25/14 VF Profit Rises on Strength in... 02/14/14 Stocks to Watch: Campbell Soup... 02/14/14 VF's Earnings Rise on Strong S... More quote details and news » (VFC) in 2013.
Interestingly, Silverblatt notes that Apple's 7-for-1 split would result in a post-split price of $74.96 based on Wednesday's close. That would be slightly less than the average price of $77.91 for S&P 500 companies.
In Lake Woebegone, all children are above average. Could Apple see some virtue in being just average? At its post-split price, its stock might be suitable for inclusion in the Dow Jones Industrial Average with its archaic price-weighting method of calculation. And Apple previously split its stock 2-for-1 in 2000 and 2005, so the move isn't unprecedented.
But splitting Apple recalls the wisdom of that great philosopher, Yogi Berra. Asked if he wanted his pizza cut into eight or four slices, he supposedly replied, "Four. I'm not that hungry."
Whether a smaller slice of Apple is more appealing may depend on who's consuming it. Perhaps if you can afford only a sliver, a lower price is better. If you're buying a pie, it doesn't matter.
Email: randall.forsyth@barrons.com
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