Originally posted by G_Warren
But in that case, you would be purchasing for $80, and then they would be worth $40 a couple of days later? No? Am I being really stupid and missing something because I have been working my brain too hard today or something?
Pretty much. Basically a stock split works like this: you get double the shares at half the price and half the earnings. Basically, nothing changes whatsoever. It's still valued the same. Doubling the available shares from 900 million to 1.8 billion is how you get half the earnings per share. Therefore, if you have a certain amount of money invested in say, 100 shares of AAPL.. it becomes 200 shares at half the price, and you still own the same amount of money in the stock. That $100 price target does indeed become $50, but a $10 gain from 40 to $50 is still the same % gain as a $20 gain from 80 to $100. That's as simple as I know how to explain it.
Keep in mind that a company's stock is a way for the company to essentially make a ton of money. People are INVESTING in them.. someone posted earlier that if the stock rises back to $80, Apple has essentially doubled the amount of money invested in the company. So to reiterate, right now Apple has 900 million shares are $80. Once the stock splits, they'll have 1.8 billion shares at around $40. That's no change in value. Now, once the stock climbs again, they're automatically making money. The appeal of the split is to attract more investors at a lower entry price. For people that already own AAPL or want to get in on the split, the time to buy is before Feb. 18th. Just keep in mind that the stock isn't projected to hit $100 after the split.. it's $50, so it will take a while for the stock to gain value. This isn't instant money for AAPL.. but for a company on the rise, it's a great way to spur investment.
Just an interesting fact I heard on CNBC.. this is only the 3rd time in AAPL's 25-year public trading history that they've split the stock.