Last night, upstart airline JetBlue (NASDAQ:JBLU) issued a statement that should provide investors with some food for thought. The company announced a three-for-two stock split, backing it with a short quote from CEO David Neeleman: "The ... split reflects our confidence in the Company's future growth prospects."
Maybe Neeleman was too tired to repeat the statement he made last October when the company announced another three-for-two split: "JetBlue has a history of solid financial performance," he said at the time. "We believe our low cost structure together with our preferred product and customer service provide the foundation for delivering long-term value for our stockholders."
Why is this worth pointing out? Simply as a reminder that:
- A company splits its stock because it has gone up.
- A company's stock goes up because the company has performed in such as way as to encourage investors to pay progressively more, over time, for its shares.
- Investors pay progressively more for a company's shares because they believe the company will continue to perform in such a way as to continue to encourage investors to pay progressively more, over time.
Well, you get the idea. And that's pretty much the whole idea. There are, admittedly, some emotional and technical benefits to splitting shares -- we discuss those in our FAQ --- but they certainly have no effect on business performance and have more to do with boosting short-term investor confidence and increasing liquidity.
Perhaps we're just mincing words here. But Neeleman's latest statement tells us next to nothing about his thoughts on JetBlue beyond that it was time to do something about the share price. (Stock-price management, while perhaps fashionable, rarely creates long-term value of any kind.)
His previous comment, at least, serves as a reminder for why management believes the company performs well and should be expected to do so in the future. Investors, like managers, should be ever focused on the latter.
Randy Befumo said all this much more effectively in a 1996 article, updated in 2002, that is highly recommended reading.
Dave Marino-Nachison can be reached at [email protected].
