Historical Stock Splits: How Can You Predict It?
Stock splits can mean big profits for shareholders, especially if you choose to sell half your split stock. By looking at historical stock splits, you may be able to predict when they'll occur on your own stocks. When stock splits, it can be in various increments: 2:1, 3:1, 5:2, et cetera. It all depends on how high the value of the stock has gotten. You can only expect splits to occur once every few years, and it most often happens with fast-growing cutting-edge companies with high expected future earnings, or with Fortune 500 and blue-chip companies. Stock typically splits when the value of an individual share has gotten high enough that investors are discouraged from purchasing them - a great thing for current investors. And when that stock does split, you can expect the value to go up rapidly, as those investors who were reluctant start buying into the stocks right away. For instance, if your stocks reach over a hundred dollars a share, they seem very expensive. But if you split them at two-for-one, the price halves immediately, current shareholders suddenly own twice as much stock, and investors start to buy stock on the market for its now-lower price. Even though they're receiving half as much as they would have before the split, psychologically it feels much higher. Reverse splits are another type of historical stock split, but you want to watch out for this. It happens when a company determines that they have such a low price on stocks, they want to double its price in order to look more respectable and boost sales of stocks. Suddenly, instead of owning a hundred shares at $5 each, you own fifty shares at $10 each. This has a less-predictable outcome. It may be seen as a danger sign by stockbrokers, a stock to avoid. But conversely, they may decide that the stock will be more attractive to buyers, and thus the price will go up. In reverse splits, caveat emptor. The primary predictors of a historical stock split have been the initial price of the stock and the rising price of the shares. If the price rises above a certain level and is expected to continue rising (but not as fast), company executives may opt for a split. Look for stocks that have slowed down in rising value, but that are from a good stable company. Ask yourself how much more attractive the stock would be to you if it were half as expensive. From this data, you may be able to predict a split before it happens and buy in first.