jeudi 21 juin 2018

The effect of a split

There’s been a 3 for 1 split for Dollarama yesterday. And the stock was up 3,3% without any reason (the S&P was up 0,17%).

If you have a minimum of notions in investing, you know that a split has absolutely no plus-value. You now have more shares but the split dilutes the earnings among a bigger number of shares.

So, why did the stock went up?

With the stock market, we can’t be absolutely sure about what everybody thinks. But I have two theories that are highly possible:

1- Some people think that the stock is much cheaper now. Some websites haven’t adjusted yet so people may believe that the PE ratio is now very low. 

2- Some people believe that many investors are stupid and will buy the stock for the reason above. So they buy the stock now.

I don’t remember a time when a split had a negative effect on some stock. It doesn’t always have a positive effect but it’s usually either positive or neutral. 

And the more positive it is, the most we should be worried about the intelligence of investors.

2 commentaires:

  1. A split send the signal that the stock price has increased significantly. A superficial sign of property, like buying a luxury car.

  2. Waiting for CIBC and CP to split next because I own both. MUhahahah!