As Fools, we know the value of a stock split: zero. It's a nonevent. Instead of a $20 bill in your wallet, you now have two $10 bills. You're eating 12 smaller slices of your pizza instead of six larger ones.
So if stock splits mean nothing, why do companies do them? A few reasons really, none of which has anything to do with whether the stock is a good investment. Here are the usual reasons:
- To make the stock look cheap.
- To increase liquidity.
- To meet stock-exchange listing requirements.
- To express a bullish management sentiment.
Regardless of the reason, the market tends to view stock splits as positive events, and a company's shares can get a short-term boost from the news. If the business isn't a good, long-term company, it doesn't matter if its shares split, or whether you buy them before or after.
A split decision
That's why we pair up stock-split announcements with the sentiments of the 65,000 investors at Motley Fool CAPS. Every day, professional and novice investors rate the prospects of thousands of stocks, resulting in a rating between one and five stars (five being the best). If the best stock pickers think a company's long-term performance is outstanding, and the company has announced the bullish signal to split its shares, maybe investors should take notice.
Then we dive in and see what exactly the CAPS community has to say about some of these companies. Here is a list of companies that recently announced stock splits.
|
Company |
Split |
Announcement Date |
Date Payable |
|
|---|---|---|---|---|
|
Simulations Plus |
2:1 |
9/13 |
10/1 |
** |
|
Molson Coors |
2:1 |
8/2 |
10/3 |
**** |
|
Cognizant Technology |
2:1 |
9/17 |
10/16 |
***** |
|
Dick's Sporting Goods |
2:1 |
9/13 |
10/19 |
*** |
This is a pretty well-thought-of group of companies -- with the exception of small-cap Simulations Plus, a developer of pharmaceutical simulation software and services, which only garners a below-average two-star rating -- with CAPS players as confident about their prospects as management apparently is.
Divided sentiment
While my heart (OK, maybe my tongue and stomach, too) lies with the maker of Coors Light, outsourced IT provider Cognizant Technology has won the votes of CAPS investors with a five-star rating. Top-rated All-Star cuffllinks, with a 96.67 player rating, notes that after a first-quarter scare, the company is back on track:
Stock has been a good value since 1Q earnings was overreacted to. They cut their hiring plans slightly to achieve higher utilization rates, and higher margins. However [the] growth story continues, and penetration into big customers has still lots of room to run. Real story for me is that they are adding higher value added services and solutions for biggest clients.
And just the other day, CAPS investor trovak79, who likes Cognizant's prospects and remains bullish on the future, highlighted some of the issues that investors ought to keep in mind:
The growth of 10% EPS per quarter is really hard to overlook, and no real reason to think this will slow down substantially in the near term. They expense off their options, and still maintain a 19% margin.
However, in the longer term, a few things make me wonder how much the growth can be sustained.
You can read more of what trovak79 had to say about Cognizant in his pitch on his CAPS page here.
Split
the difference
How about you? Will the market continue to recognize Cognizant? Will Molson Coors tap investor faith? Get in the mix with Motley Fool CAPS and share how you feel about these stock-split stories with tens of thousands of your fellow investors.
