If there are any Green Mountain Coffee Roasters (Nasdaq: GMCR ) shareholders freaking out over this morning's substantially lower open, relax.
Better yet: Pop in a K-Cup portion pack, brew a cup of your favorite premium java, and wake up.
Green Mountain's 3-for-1 stock split -- in which every single share is exchanged for three new shares at one-third of the price -- went into effect after last night's close. Of course, this is a zero-sum game. Investors own three times as many shares as they used to, but the overall value of their investments didn't change.
Stock splits were regular occurrences in the 1990s. Companies whose share prices appreciated considerably often went the split route to give new investors the perception of attractive entry points. But today's stock darlings don't play by those rules. Google (Nasdaq: GOOG ) and Apple (Nasdaq: AAPL ) appear to have no intentions of splitting, despite charging higher and higher into the triple digits.
Well, that sentiment may finally be turning.
Another high-priced darling -- China's leading search engine, Baidu (Nasdaq: BIDU ) -- went through a 10-for-1 split on its stateside trading shares last week. The fast-growing company simply went from trading in the $700s to the $70s -- with every share replaced by 10 shares at the lower price.
Danaher (NYSE: DHR ) , Canadian Natural Resources (NYSE: CNQ ) , and cereal giant General Mills (NYSE: GIS ) all declared 2-for-1 stock splits in the last two weeks as well.
If this is the start of a trend, investors need to remember that splits aren't necessarily good or bad news. They are often spun as a mild positive. A company has to be comfortable enough with the stability of its share price to work the simple division. However, there are no guarantees. A split may be a pat on the back after solid past performance, but it's not an indicator of a stock's future performance.
So take them for what they are worth. Don't panic. Don't party. Just make sure you adjust your entry points accordingly so you don't get burned on the cost basis when you do ultimately cash out.
What do you think of stock splits? Share your thoughts in the comments box below.
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