4 ms·

Why do you think the price per share is relevant?

by tome 11y ago

kwsmith 11y ago
Because while logically the price is irrelevant, in practice is isn't. Prices below $5 often indicate that a company is in trouble. Which I think is what the unfairly downvoted comment above was referring to.
- tome 11y ago
  > Prices below $5 often indicate that a company is in trouble. Really? What are you basing that on?
  - nathank 11y ago
    Just read the comments below before posting again.
    - imtringued 11y ago
      Which comments? You do realise that the order of comments is influenced by votes and how recentley they were created? Either give us a proper explanation or a link to the comment you are refering to. Stock splits are only about convenience. Imagine if all we had are $100 bills. Buying groceries will be quite a hassle. The government then decides to do a split and let everyone exchange their $100 bills with 10 $10 bills. Everyone still has the same amount of cash but it's now easier for the average consumer to buy their groceries. How would the existence of a $10 bill mean the economy is in trouble?
      - brianwawok 11y ago
        This is a too simple analogy. Some exchanges wont list a stock if it's under $1. Some brokers wont let you short under $5. If grocery stores took no bill smaller than $1 , would you really want to cash your $10 bill into pennies?
- lottin 11y ago
  A stock is just an arbitrary fraction of the capital stock, therefore the price in absolute value of a single stock is completely irrelevant. Suppose a company has a market value of $1,000. The company can divide its stock into 1,000 one-dollar shares, or into 500 two-dollar shares. Either way in makes no difference as far as the total worth of the company goes.
  - the_holy_grail 11y ago
    Thank you for the elementary school lecture. You are completely right: This is why companies are so eager to do a stock split at $6. It's all just arithmetic!
  - reddytowns 11y ago
    The NASDAQ market, which AMD is in, and the NYSE require that the price of its stocks are traded at or over $1 to avoid delisting.
RockyMcNuts 11y ago
Sometimes brokers don't allow you to margin (borrow against or sell short) stocks below $5. Sometimes funds have covenants on not buying stocks below $5 because they are considered penny stocks and funds want to claim they focus on quality. Surprisingly, couldn't immediately find a good academic research paper on behavior of low-priced stocks. A priori - - very expensive stocks might be a little cheaper than they otherwise would be, high cost makes them harder to buy for individuals and low cost funds. (e.g. if Berkshire Hathaway stock is $200,000, an individual with a $100,000 portfolio can't buy it, and even a pretty big portfolio can't fine-tune exposure with a lot of granularity. Hence, some enterprising fellows started funds that would just own Berkshire and sell shares in smaller increments, and Buffett got annoyed at that and launched Berkshire B, which sells for $146). - very low priced stocks might be more volatile and show interesting behavior at certain thresholds, penny stocks below $1 might be overpriced since it's a hotbed of speculation, stocks that cross $5 might experience some excess selling so they might be underpriced, on the other hand they might experience some short covering as they become unmarginable for some. But anyway, companies usually aim for a stock price in the $10-100 order of magnitude because that's the area where even relatively small investors wouldn't have a problem fine tuning their exposure. Price < $5 is usually an indication it's well off its high.

Why do you think the price per share is relevant?

by tome 11y ago

Why do you think the price per share is relevant?

Because while logically the price is irrelevant, in practice is isn't. Prices below $5 often indicate that a company is in trouble. Which I think is what the unfairly downvoted comment above was referring to.

tome 11y ago
> Prices below $5 often indicate that a company is in trouble. Really? What are you basing that on?
- nathank 11y ago
  Just read the comments below before posting again.
  - imtringued 11y ago
    Which comments? You do realise that the order of comments is influenced by votes and how recentley they were created? Either give us a proper explanation or a link to the comment you are refering to. Stock splits are only about convenience. Imagine if all we had are $100 bills. Buying groceries will be quite a hassle. The government then decides to do a split and let everyone exchange their $100 bills with 10 $10 bills. Everyone still has the same amount of cash but it's now easier for the average consumer to buy their groceries. How would the existence of a $10 bill mean the economy is in trouble?
    - brianwawok 11y ago
      This is a too simple analogy. Some exchanges wont list a stock if it's under $1. Some brokers wont let you short under $5. If grocery stores took no bill smaller than $1 , would you really want to cash your $10 bill into pennies?
lottin 11y ago
A stock is just an arbitrary fraction of the capital stock, therefore the price in absolute value of a single stock is completely irrelevant. Suppose a company has a market value of $1,000. The company can divide its stock into 1,000 one-dollar shares, or into 500 two-dollar shares. Either way in makes no difference as far as the total worth of the company goes.
- the_holy_grail 11y ago
  Thank you for the elementary school lecture. You are completely right: This is why companies are so eager to do a stock split at $6. It's all just arithmetic!
- reddytowns 11y ago
  The NASDAQ market, which AMD is in, and the NYSE require that the price of its stocks are traded at or over $1 to avoid delisting.

RockyMcNuts 11y ago

Sometimes brokers don't allow you to margin (borrow against or sell short) stocks below $5. Sometimes funds have covenants on not buying stocks below $5 because they are considered penny stocks and funds want to claim they focus on quality. Surprisingly, couldn't immediately find a good academic research paper on behavior of low-priced stocks. A priori - - very expensive stocks might be a little cheaper than they otherwise would be, high cost makes them harder to buy for individuals and low cost funds. (e.g. if Berkshire Hathaway stock is $200,000, an individual with a $100,000 portfolio can't buy it, and even a pretty big portfolio can't fine-tune exposure with a lot of granularity. Hence, some enterprising fellows started funds that would just own Berkshire and sell shares in smaller increments, and Buffett got annoyed at that and launched Berkshire B, which sells for $146). - very low priced stocks might be more volatile and show interesting behavior at certain thresholds, penny stocks below $1 might be overpriced since it's a hotbed of speculation, stocks that cross $5 might experience some excess selling so they might be underpriced, on the other hand they might experience some short covering as they become unmarginable for some. But anyway, companies usually aim for a stock price in the $10-100 order of magnitude because that's the area where even relatively small investors wouldn't have a problem fine tuning their exposure. Price < $5 is usually an indication it's well off its high.