Fools know the value of a stock split: zero. It's a nonevent. Instead of a $20 bill in your wallet, you've now got 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? There are a few reasons, none of which has anything to do with whether the stock is a good investment. Here are the usual ones:
- 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. But 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 70,000 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 exactly what the CAPS community has to say about some of these companies. Here is a list of stocks that have recently announced splits.
|
Company |
Split |
Announcement Date |
Date Payable |
CAPS Rating |
|---|---|---|---|---|
|
IDEXX Labs (NASDAQ:IDXX) |
2:1 |
10/26/2007 |
11/26/2007 |
***** |
|
Dominion Resources (NYSE:D) |
2:1 |
10/29/2007 |
11/19/2007 |
*** |
|
FLIR Systems (NASDAQ:FLIR) |
2:1 |
10/25/2007 |
12/10/2007 |
***** |
|
Gorman-Rupp (NYSE:GRC) |
5:4 |
10/26/2007 |
12/10/2007 |
***** |
|
Graham (NYSE:GHM) |
5:4 |
10/26/2007 |
01/02/2008 |
***** |
This is a pretty well-liked group of companies with almost all of them rating five stars, a signal investors are just as confident about their prospects as management apparently is.
Seeing red with FLIR -- infrared
It's been a big change over the past year or so for thermal imaging company FLIR. With a stock that looked like a heat map of the Arctic as the company met or missed earnings forecasts, it got a boost when it won a big contract as part of a team with Lockheed Martin (NYSE:LMT) to equip its Textron (NYSE:TXT) Bell helicopters with thermal imaging devices for the U.S. Army. It's been rising like mercury in an August thermometer ever since.
CAPS All-Star mimosapartners sees FLIR's growth having just as much to do with its commercial applications as those it gets from the government.
Natural disasters, fires, crime, and terrorists will continue to create a thriving market for FLIR. And Homeland Security is making our tax dollars available to purchase thermal imaging systems and infrared cameras. This company's success will be a way to reclaim some of our tax dollars.
FLIR is unique among its competitors, in that its products are built to government specs, but are designed for commercial applications as well, giving them the opportunity to appeal to a wider market. That's why another All-Star, MyMacFool, likes it, though it continues to gain government contracts:
Well-run company with both civilian and defense exposure. Very low employee turnover and great R&D. 8/16/07 $20 million Navy contract.
Split the difference
How about you? Will investors eventually flee FLIR, or keep burning ahead for profits? Get in the mix with Motley Fool CAPS, and share how you feel about these stock split stories with thousands of your fellow investors.
