Originally posted by footynbeers
A stock split will have absolutely no impact on the valuation of a company and there is no reason it would cause a "pe rerating downwards" as you say. The stock will become easier to trade in smaller volumes as to purchase one additional share an investor only need fork over a few extra dollars rather than $160.
The aim of this is to attract more liquidity to the stock by bringing in smaller holders who wish to purchase smaller amounts of the stock.
The value of each persons holdings doesn't change at any point due to to the stock split, so it stands to reason that a person would continue to hold the exact same holding that they did before. There is no reason for someone to sell shares following the split as the proportion of their portfolio held in this stock wont change.
Further, any sales that actually occur because some investors trade stocks by the number of shares they hold (who does this?) will be easily matched by the additional demand created by opening up the share to purchase in smaller increments.
I look forward to your reply.
footynbeers
Your points all sound valid of course. But do not actually justify the action - in my opinion.
Like I said, at a forward PE of say 30, this stock does not have any valuation problems that need addressing by improving liquidity.
Share registry costs go up for the number of shareholders in the company, so this change does not come without expense.
I would have preferred that management spent their time and the company's money on legal and admin costs focusing on better things.
I cannot say any more than I have already.
I would be happy to buy 1 share in Berkshire Hathaway for US$300,000 and would not feel any better off to own a 100 shares with the same total value.
Gosouth
(20min delay)