AAPL tends to be historically volatile after stock splits though
About one month back, I compared the market cap and technical journeys of FAANG stocks Alphabet (GOOGL) and Apple (AAPL), specifying that the latter has added $1 trillion in market cap since its 2015-2016 lows. This week, I am once again digging deeper into the seemingly unstoppable tech leader, this time through its market cap potential moving forward, and its history with stock splits. Sparking this deep dive is the company’s late-July earnings report and reveal of its first stock split since 2014. Specifically, the iPhone maker reported fiscal third-quarter earnings and revenue that beat estimates -- as well as gains in every product category -- as consumers and students move to remote work and learning. Following this was the reveal of a four-for-one stock split, guiding the shares to uncharted territory.
Since then, AAPL has marked continuous all-time highs, most recently locking in an intraday peak of $457.65 on Thursday, August 6. In fact, over the past 12 months, Apple stock has more than doubled, making it less of a surprise its overwhelming potential to reach the psychologically significant $2 trillion market-cap. This is especially true, when the security is compared to the iShares Russell 2000 Index (IWM). It looks to be approaching the 3.0 ratio of the two, following a modest floor of support that emerged at the 1.0 mark, and while hesitation seemed evident near 1.5 as well, as mentioned before, it now stands at more than double this level. This increase of nearly $1 trillion to its market cap in just a few months’ time is practically unheard-of, making the $2 trillion potential that more significant.
Switching gears to Apple’s history with stock splits, Schaeffer’s Senior Quantitative Analysts Rocky White and Chris Prybal calculated data on the equity’s performance pre- and post-stock split going back to 1987, it’s first on record. Specifically, excluding the most recent one last month, Apple has recorded four stock splits. The company reported a two-for-one split on both June 16, 1987, and June 21, 2000. The third occurred on February 28, 2005, also a two-for-one split, while a seven-for-one split took place on June 9, 2014.
Looking at AAPL’s pre-split movement that averaged all four splits, the equity was averaging a 10-day gain of 10%, with 100% of these returns positive. However, looking even further back at 126 days pre-split, AAPL averaged a 71% gain, with all returns positive. This suggests that before announcing a stock split, Apple stock sees a stable amount of outperformance on the charts.
Meanwhile, after a stock split the shares of Apple seem to become increasingly less stable. This is per its 10-day average return for all four occurrences clocking in at negative 5.6%, with zero ending positive. Further out, 126-days post stock split, all four instances averaged a return of -15.09%, with just half ending positive. In conclusion, the post-stock-split turmoil looks to continue for at least 25 weeks, meaning the tech giant could be ripe for a pullback on the charts over the next six months. Potential post-stock-split turmoil could create friction for a takeover of the $2 trillion market cap -- meaning investors should be on high alert toward the FAANG name for at least the remainder of an already volatile 2020.
Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, August 9.