KO (Coca Cola) did a two-for-one stock split? They doubled the number of shares they have? WTF?
a couple weeks ago KO was trading around $75-80/share!
suddenly I hear they did a stock split where they doubled the number of shares they have and now it's trading at $37.50/share............
Does this make KO seem undervalued?
The thought of the world's biggest soft-drink company trading at $37.50/share.........
is starting to make me think that people are gonna perceive this as being undervalued..........
meaning: This stock has a very bright future.
Would you agree with that analysis?
- 9 years agoFavorite Answer
A 2-for-1 stock split is seen as a positive for a stock. Technically speaking there is no benefit - you get twice the shares you had, but the stock is worth half as much.
That being said, with twice the shares, arguably you have greater potential for future growth of your investment.
Some stocks do reverse splits, where they take away your shares and increase the share price. Usually this is done to stocks that are trading below $1.00 and in danger of being delisted. A stock that does a reverse split is generally in bad shape.
I wish my stocks would split 2-for-1!
(Also the answer that said it was was an attempt for KO to raise more capital is incorrect. Companies only raise capital during an IPO or other primary market offering. We trade in the secondary market. When we buy stock, our $$ is paid to the seller. The company does not get the money paid for stock that is trading in the secondary market. So a stock split has no capital raise benefit for the company.)
- 9 years ago
Shares represent an "entitlement" to a portion of the the underlying assets and earnings of a company. If the number of shares doubles, then the "entitlement" PER SHARE halves. So the share price should also fall about 50% but when multipled by the increased number of share the net value is the same. This is in fact what happened in your example. 2 x 37.50 = 75.
Now, if a company does such a split and then maintains earnings or dividends per share at the previous level then that would be something very special.
- Anonymous4 years ago
Coca Cola has a nicely stored secret formula hidden wisely. the secret formula is the finished secret surrounding Coca Cola, in all risk the final familiar gentle drink interior the international when you consider that previous many many years. One trivial actuality is that the colour of Coca Cola while it became first released became "eco-friendly'.
No. The analysis is poor. The purpose of a stock split is an attempt by KO to raise capital (through the sale of shares of stock). It's easier for people to pay $37.50 / share than it is to pay $75 / share
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Well, this is an even dumber strategy than you usually come up with. What difference do you think it makes if there are 1M shares at $100 or 2M shares at $50 or 4M shares at $25 or 8M shares at $12.50? No difference except that rather feeble argument that someone brought up that shares are more liquid at $40 than at $80 (Warren Buffett thinks that's stupid).