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On April 2, search giant Google Inc. (Nasdaq: GOOG, GOOGL) unveiled a stock split – a 2-for-1 reapportionment that halved the price of the "Thousand-Dollar Club" GOOG stock, meaning you can now snap up shares at a more affordable $530 each.
Retail investors usually love when a "name-brand" stock announces a split – even though academics typically dismiss the move as a "book-keeping" maneuver with little impact on the underlying profit opportunity.
Today I'll explain why. And I'll also show you how the GOOG stock split can give your investment portfolio a nice lift.
The GOOG Stock Split
Over the last year, we've talked a lot about the difference between a stock's sticker price and its value. As I have said many times, a high-priced stock that gains 50% is cheaper in the long run than a penny stock that gains only 20%.
Now, Google isn't that kind of high flyer, but it's a quality stock with rock-solid fundamentals. It's one of my all-time favorite tech stocks, in fact.
Before we talk more about the specifics of the Google transaction – and look at how it can help you – let's first take a look at stock splits in general.
First, to be absolutely clear, a stock split does not affect the market cap of the stock or any of the metrics we typically use to analyze the stock.
For instance, say that XYZ Software Corp. has been trading at $100 a share and then splits its stock 2 for 1. That means there are now twice as many shares of XYZ on the market, and they cost $50, not $100. Now, $5,000 buys you 100 shares instead of 50 shares.
You will have invested the same amount, but the entry price is much more attractive.
In essence, companies split their shares to boost the "liquidity" – Wall Street jargon for boosting the shares' allure and increasing their tradability. Cutting the price down makes the stock more attractive to average investors who don't have millions to throw around the way hedge-fund managers or high-frequency traders do.
And there is a tangible benefit – for the company, and for investors shrewd enough to move in and capitalize.
Here's how it all breaks down, and why it's so huge for investors…
About the Author
Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.
As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.
You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.