3 ms·

Couldn't they just be trying to keep the share price down in the ultra affordable range, so people will gamble with it upon IPO?

by gte910h 16y ago

ktsmith 16y ago
If the IPO is not till 2012 then why split it now when the price could simply go back up to current levels in the mean time.
- gojomo 16y ago
  Let's say they're able to report, pre-IPO, that "we've had 2 splits in the past 2 years just to get down to a market-friendly IPO price!" Not that it's rational, but some people would see that as a bullish signal.
ghshephard 16y ago
That's the "Market Cap will be higher if Stock Price is smaller" theory that I'm not a huge fan of. If it were true, then there would be a _great_ arbitrage opportunity for efficient market practitioners who were instead focused on ROE/ROI/Cashflow principals of stocks that had excessive value because they had been "split." In the short term, market is a voting mechanism, long term it's a weighing device. The major challenge is trying to differentiate between the two - but Market Splits would seem to be custom designed to be 100% voting bias.
- yummyfajitas 16y ago
  It's not an arbitrage opportunity, it's selling liquidity. The risk is that you might be unable to sell the high-price stock when you want to. The premium for liquidity is real and important. Compare charts for Chipotle and Chipotle-B (CMG.B = CMG + 10x voting rights) - until the end of last year, CMG traded at a significant premium over CMG.B. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=0&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1232744400000&chddm=209732&chls=IntervalBasedLine&cmpto=NYSE:CMG.B&cmptdms=0&q=NYSE:CMG&ntsp=0 http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...
  - ghshephard 16y ago
    Agreed - but I don't know if there is any evidence to suggest that $72 vs $14.40/share will have any significant liquidity impact on buyers and sellers. $72 is hardly a "high-price" stock. I think the poster who suggested that being able to lure employees in with 5x the number of options had it right. After the split, an employee who would have been granted 3,000 options, will now get 15,000 options.
  - glhaynes 16y ago
    Interesting! Could some of that effect be from people wanting "Chipotle" rather than "Chipotle-B"? One would hope investors would be more educated than that; but, before reading your post, if I'd been offered 10 shares of Chipotle or 10 shares of Chipotle-B and had to make my pick just on name, I'd certainly have taken the former.

Couldn't they just be trying to keep the share price down in the ultra affordable range, so people will gamble with it upon IPO?

by gte910h 16y ago

Couldn't they just be trying to keep the share price down in the ultra affordable range, so people will gamble with it upon IPO?

ktsmith 16y ago

If the IPO is not till 2012 then why split it now when the price could simply go back up to current levels in the mean time.

gojomo 16y ago
Let's say they're able to report, pre-IPO, that "we've had 2 splits in the past 2 years just to get down to a market-friendly IPO price!" Not that it's rational, but some people would see that as a bullish signal.

ghshephard 16y ago

That's the "Market Cap will be higher if Stock Price is smaller" theory that I'm not a huge fan of. If it were true, then there would be a _great_ arbitrage opportunity for efficient market practitioners who were instead focused on ROE/ROI/Cashflow principals of stocks that had excessive value because they had been "split." In the short term, market is a voting mechanism, long term it's a weighing device. The major challenge is trying to differentiate between the two - but Market Splits would seem to be custom designed to be 100% voting bias.

yummyfajitas 16y ago
It's not an arbitrage opportunity, it's selling liquidity. The risk is that you might be unable to sell the high-price stock when you want to. The premium for liquidity is real and important. Compare charts for Chipotle and Chipotle-B (CMG.B = CMG + 10x voting rights) - until the end of last year, CMG traded at a significant premium over CMG.B. http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=0&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1232744400000&chddm=209732&chls=IntervalBasedLine&cmpto=NYSE:CMG.B&cmptdms=0&q=NYSE:CMG&ntsp=0 http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...
- ghshephard 16y ago
  Agreed - but I don't know if there is any evidence to suggest that $72 vs $14.40/share will have any significant liquidity impact on buyers and sellers. $72 is hardly a "high-price" stock. I think the poster who suggested that being able to lure employees in with 5x the number of options had it right. After the split, an employee who would have been granted 3,000 options, will now get 15,000 options.
- glhaynes 16y ago
  Interesting! Could some of that effect be from people wanting "Chipotle" rather than "Chipotle-B"? One would hope investors would be more educated than that; but, before reading your post, if I'd been offered 10 shares of Chipotle or 10 shares of Chipotle-B and had to make my pick just on name, I'd certainly have taken the former.