General Info on splits for those who care.....
New York, March 30 (Bloomberg)</A> -- When IBM Corp. declared a 2-for-1 stock split in January, the world's biggest computer maker's first in two years, the stock rose 2 percent the next day. For an Internet company, that's a few minutes' work. San Jose, California-based AboveNet Communications Inc., which hosts business Web sites, surged as much as 34 percent today after it announced a 2-for-1 split. Yesterday, rival Concentric Network Corp. rose 20 percent after a similar announcement. In January, after they declared splits, Broadcast.com Inc., an Internet broadcaster, surged 44 percent in a day, and online auctioneer EBay Inc. jumped 37 percent.
It's called rising through a stock split. Long seen as a way for management to signal confidence in a company's prospects and broaden its reach to the less wealthy by cutting a share's price, stock splits -- which basically slice the same corporate-asset pie into more pieces -- have become an Internet ''buy'' signal.
''Internet stocks are atypical,'' said David Ikenberry, a Rice University management professor and co-author of a study on stock splits. ''Many of these stocks are splitting from very high prices to higher prices still.''
In some cases, Internet stocks have almost doubled before a split, largely negating any intended reduction in price. Ameritrade Holding Corp., for example, rose 87 percent between the date it declared a 2-for-1 split, Jan. 25, and the date it became effective, Feb. 22.
''There's a group that's buying these stocks just because it's happening -- the day traders, the momentum traders -- and so it feeds on itself,'' said Howard Ward, manager of the $2.05 billion Gabelli Growth Fund. ''It's somewhat a sign of the times, a speculative game.''
Outsize Gains
Shares of Internet companies declaring splits since June rose in 21 of 24 cases -- 13 by more than 10 percent.
Internet stocks gained 12.4 percent, on average, in the day after such a move was announced. That exceeds the 8 percent average full-year rise for 1,275 companies that announced stock splits between 1975 and 1990, according to Ikenberry's study. The annual gain was about 7 percent between 1990 and 1996, he said, based on subsequent research.
With the promise of such outsize gains, a cottage industry of Web sites and newsletters with names like Stocksplits.net and the Right Line Split Report now offers predictions on when companies will declare splits. And message boards crackle with amateurs' own pronouncements, sometimes misinformed. Last Monday, one poster on Yahoo Finance wrongly predicted E*Trade Group Inc. would announce a split last Tuesday.
''It's good entertainment as far as I'm concerned,'' said Ward. ''But it makes no difference in how I invest. A banana split is worth more to me than a stock split.''
Some inexperienced investors may buy into stock splits because they mistakenly think a company is more valuable because it has more shares, Ward said.
When Amazon.com Inc., the online bookseller, split its stock 3-for-1 in December, it rose 18 percent to 180 5/8 on the news. Even at one-third the price, or just above 60, it would sell for almost triple the price of the average New York Stock Exchange- listed stock, said Ikenberry.
In fact, Amazon rose more than 100 in the month to 286 11/16 leading up to its split. So the post-split price was 95 9/16.
16:41:47 03/30/1999 <BR> |
