Q: How does a stock split create value?
A: It doesn't.
So how does this make sense? In Shuffle Master's
"On December 9, 2004, the Company announced that its Board of Directors approved a three-for-two common stock split. Shareholders of record as of January 3, 2005, received one additional share of Shuffle Master common stock for every two shares owned."
It's one thing to note that a stock split is being done for liquidity purposes, as the company did this time last quarter. But at the time of its fourth-quarter release, the company also went as far as to announce with "pleasure" its second stock split of the year and listed the first split under its fiscal 2004 accomplishments as well.
The fact is that stock splits create no long-term value, and both the shareholder and the company should regard such an event with indifference. And it's not as though Shuffle Master needed to pump up its stock split to cover a bad quarter -- in fact quite the opposite.
Shuffle Master's first-quarter revenues climbed 63% to $25.4 million, boosting income from operations 45% to $9.7 million. Meanwhile, earnings per share jumped 55% to $0.17 per share, beating the analyst estimate of $0.15 per share.
Revenues from utility products -- namely card shufflers -- increased 64% to $13.4 million, helped by the CARD acquisition last May, as well as an increase in its Deck Mate poker shufflers on lease. Revenues from entertainment products -- i.e. proprietary table games -- rose 61% to $12.0 million, helped by the popularity of the relatively new Four Card Poker, as well as the portfolio of games acquired from BET Technology in February of last year.
It was another fantastic quarter for the Motley Fool Stock Advisor selection. But there must be a better way to mention that you split your stock without attributing value to it as an "accomplishment."
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Fool contributor Jeff Hwang owns none of the companies mentioned above.