Is Apple's split a sell signal for the market?
The stock market has gone into big swoons after Apple Computer's last two stock splits. Techs and semiconductors boost stocks Friday. Hewlett-Packard, Coca-Cola and Wal-Mart dominate earnings next week.
By all accounts, Apple Computer (AAPL, news, msgs) probably should split its stock. It's up 519% since hitting a bottom in April 2003. It's up 26% since the end of 2004. It was up 3.64% on Friday and helped the market to one of its best weekly finishes of the year.
And if you believe in Apple's mantra that it is a cool company for the masses, $81.21 a share does sound pricey. While the company's decision Friday to split the stock two for one won't have any effect on the bottom line or its balance sheet -- or any other of its fundamentals -- some investors will mistakenly assume that paying $40 or so for a share is a better deal than $80.
Fair enough. That kind of thinking may even push the stock higher. But Market Dispatches got curious about what happened to Apple shares, and the broader market, after the company's other splits. The answer is a bit sobering. Splitting Apple's stock may be, dare we say it, a signal the market is about to tumble.
Apple split two-for-one on June 16, 1987. On Oct. 5, the stock peaked at a split-adjusted $59.25. Two weeks later, the market had its worst one-day loss ever in the Oct. 19, 1987 market crash. By Oct. 26, Apple was at $28.
The stock recovered and easily climbed past the 1987 peak in the next few years before it crashed again, to $6.47, on Dec. 23, 1997.
Then the shares went on a tear, rising to a then all-time high of $72.49. So, Apple split again on June 21, 2000. As with its 1987 split, the timing was dreadful. The air was already leaking from the dot-com bubble, but stocks headed only further south until October 2002. Apple shares kept climbing until Sept. 1, 2000 when they tumbled once more. In fact, the stock fell 75% by October 2002, when the overall stock market bottomed.
And the rest is, as we know, history. Time will tell us if Apple really is an indicator. But Market Dispatches notes that Apple itself has plenty far to fall: Its forward P/E ratio is 41.2, rich by most measures.
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