Anyone who remembers the go-go trading days of the 1990s probably remembers when stock splits were trophies.
Market darlings -- particularly consumer-facing companies -- would routinely declare 2-for-1 or even 3-for-2 stock splits as their share prices climbed up the double-digit ladder. If you were a firecracker of a dot-com, a casual steakhouse, or a magnetic mall retailer, forward splits were shareholder candy.
Oh, where have all the stock splits gone?
Hundreds are the new tens
Apple (Nasdaq: AAPL ) is now trading above the $200 mark. Save for a brief spell in September 2004, Google (Nasdaq: GOOG ) has spent its entire public life in the hundreds. It closed at $541.30 yesterday.
The market darlings of this generation don't appear to split, and that's creating peer pressure on the companies that would have probably declared 2-for-1 splits -- or perhaps even 3-to-1 or 4-to-1 treatments at this point -- in the past.
Let's chew on Apple. Its last split was nearly five years ago. The Cupertino cutie opted for a 2-for-1 split when its stock was at nearly $89 in February 2005. Its previous split took place five years earlier, as its stock crossed the $100 mark. You then have to go all the way back to 1987, when it announced another 2-for-1 split as its stock hit $80.
If history is any kind of teacher, Apple should have gone the split route when its stock was half of today's price. Why is it holding back now? Did we see the last of Apple's two-fers?
I have two theories. Let's see whether you can buy into either one -- or if you have a third scenario in mind.
1. Share prices don't matter anymore
When stock splits were all the rage, the moves were seen as shareholder-friendly. Individual investors were buying stocks in round lots, so it was more attractive to buy 100 shares of a stock at $30 than to buy 50 shares at $60.
There isn't a lot that is odd about odd lots these days. Most of the leading discount brokers are charging less than $10 per stock trade, making it economically feasible to buy equities in smaller, bite-sized chunks.
Forget Berkshire Hathaway's (NYSE: BRK-A ) (NYSE: BRK-B ) recent split on its Class B shares. The 50-for-1 operation was done to ease the Burlington Northern purchase. Warren Buffett resisted ordering splits on his Class A shares when they were popular; he is certainly not going to cave in now.
We also live in broker-friendly times when clients can have dividends reinvested in fractional shares. In short, we don't need to buy our stock certificates in groups of hundreds anymore, so the zero-sum maneuver isn't necessary.
2. Share price is the new trophy
My other theory is that companies are now treating their stock prices as if they were gunning for the "high scores" list on a video game.
I bet you that China's Baidu (Nasdaq: BIDU ) -- whose shares hit an all-time high of $493.96 yesterday -- wouldn't dream of declaring a split until the higher-priced Google does.
As Apple finds itself tactically pitted against Google more and more, I would argue that Apple hasn't split the way it might have in the past so its stock price doesn't appear even smaller when lining up alongside Big G.
Let's bring priceline.com (Nasdaq: PCLN ) into the conversation. The popular travel portal was humbled in 2003. It declared a 1-for-6 reverse split, made effective the day its stock closed at $4.24. This is the kind of scar that would normally call for a forward split to celebrate its eventual turnaround, letting the world know that it has overcome the reverse. Well, it hasn't happened. Shares of priceline.com recently broke through the $200 ceiling, with no split declaration in sight.
Stocks trading in the triple digits -- or higher, as in Berkshire Hathaway's case with its original Class A shares -- used to be anomalies. They're a lot easier to spot these days.
During the 1990s, stocks declared splits to be in the sweet spot between $20 and $40. They're not bothering to hit the barber anymore.
A quick screen on Yahoo! Finance finds 57 stocks trading above $100. Even ugly sectors like real estate developers and newspaper companies are represented on the list, and that's going to keep their lower-priced rivals from considering splits. As long as First Solar (Nasdaq: FSLR ) is trading at roughly $120, how many solar energy plays will consider widening the price gap with stock split declarations?
Rest in pieces, stock splits.