Stock splits help investors feel like they're making 'bigger investments': Analyst

Bob O'Donnell, TECHnalysis President and Chief Analyst joins the On the Move panel to do a deep dive into the tech giant stock splits.

Video Transcript

- To help us break that down, Bob O'Donnell, TECHnalysis president and chief analyst, joins us now. And then just refresh us here. When we talk about dilution-- a stock split is far different than a company issuing new stock, very simply because the proportion of who owns what doesn't really change when you get a stock split. Is that one of the reasons we might see, say Tesla, going up today?

BOB O'DONNELL: Well, I think that, and there's just this general excitement and, frankly, the lack of recognition by a lot of people unfortunately that in fact, as we were just discussing, you know, it's not like you get any more of the company just because you're getting a single share. You're getting one-fifth or one-quarter in the case of Apple what you were previously getting.

But look, at all of this is psychological, right? Let's not forget that that's really the element that's going on. You've got a lot of people who have been interested in potentially buying into these companies, Apple and Tesla in particular. And so this gives people who are not necessarily sitting on a whole bunch of cash the opportunity to get into something and feel like they're making a bigger investment.

So really it's a completely a psychological advantage. Frankly, if you look back historically, and I'm sure you guys have talked about this as well, you know, a lot of times after the split there's a small bump and then it actually goes down for a bit before it really comes back to where it was. So but-- but again, I think it's really the psychological aspect, and given how odd the market has been in general lately, I think we can't discount the impact that something like that's going to have.

- Bob, does this mean that we're going to actually see new investors flood into the likes of Apple and Tesla? Is that-- is that something that is basically predetermined at this point?

BOB O'DONNELL: I think we will. I mean, if you take a look at the phenomenon of Robinhood and other places where you've got lots of younger investors getting into these different companies, I think something like this does make that kind of a difference. And I think that's where some of that spike will come.

Again, realistically can it last? It doesn't seem like it's-- that's particularly likely. But I do believe-- and I think that's why, you know, you hear people like Tim Cook talking about one and the fact that they want more people to be able to get into the company. So absolutely. I-- Dan, I think that's exactly what they're trying to do is to get additional people participating in owning a portion of the company.

- Hey, Bob, just to follow up on that a little bit. Is that-- so that's not connected to the fundamentals of the company. That's-- you're sort of-- you're sort of creating demand with a bit of a gimmick in a way. Is that a problem? Does that-- if this is sort of like side demand unrelated to the fundamentals, does that tend to evaporate over time? Or does-- can this actually be a lasting-- can it actually get incorporated into the fundamentals of the company somehow?

BOB O'DONNELL: I don't-- I don't see how it does. I mean, at the end of the day, you know, as you guys were just discussing, again the outlook for these companies has not changed just because they've had a stock split. There's absolutely zero change in that regard. But there are more people who are watching it. There are more people perhaps who are involved who-- more people who have a vested interest.

Could that theoretically influence things like elections to the board of directors? Possibly that could change things. But realistically, I don't think it does. It's really-- again, it's just this sense overall of the fact that there are some people who now feel that they can own a piece of this company that they've watched and make it part of their portfolio. Or frankly, it just gives them an excuse, to be honest with you, it's like-- oh, yeah. Maybe I should consider making an investment there. Couldn't really do it before. Now I can. It doesn't change, again, the fundamental capabilities of these companies, the fundamental outlook of these companies as well.

- Bob--

[INTERPOSING VOICES]

I want to ask about, you know, when we'll eventually see these companies-- if we will eventually see these companies-- hit those highs again, right? We've, you know, split a good amount. We've cut off, you know, from the highs that we were seeing. When do you think, or do you think, they will eventually reach those really lofty heights?

BOB O'DONNELL: You know, it's hard to say. And on the Tesla side of the world, I mean, it's-- it's not logical. I'm not going to try and pretend to know what's going on over there because really it's so out of sync with reality.

If you look at Apple, right, there's a couple things coming up. We've got the iPhone 5 launch is happening in a couple of weeks, or likely. They're going to unveil what people have been expecting them to do for a long time on the services side, which is a bundle to get all their services because that's a growing piece of their business. So, I mean, if we look at some of the basic fundamentals around what these companies are trying to do, particularly Apple, I think there are some interesting opportunities.

Same time, if we look at the smartphone market overall, for example, we just saw numbers last quarter-- worldwide smartphone sales were down 20%, you know. And there's a lot more focus these days on PCs. Now, luckily for Apple, they've got some exciting new Macs coming up. They're moving to a different chip architecture inside the Mac.

So, I mean, if we look at the fundamentals of what these companies are doing, I do think there's some interesting things on the Apple side. There's some challenges, however, that we can't ignore as well.

On the Tesla side, the momentum is there. People are very excited about it. Obviously--

- Right.

BOB O'DONNELL: What-- doing it-- I just don't know, you know, long term if they're going to be able sustain that.

- Bob, I've got to ask you, because the argument you've just made could be applied to, say, like an Amazon, which right now their shares are up over 2%. And could-- when you get a stock split like we've seen with Apple and with Tesla, could that drive momentum to an expensive stock like Amazon-- $3,470 and change a share. People speculating, OK, they've got to come next. And it's driving the price up artificially?

BOB O'DONNELL: It could. It seems to be a general philosophical principles that a lot of the leadership these different organizations have. Some people care about having a stock price that a more average person perhaps could afford, and some people don't seem to care in the least. So it's really hard to say.

You could make that argument, Adam. I don't know if it's something that's really going to play itself out. I just think there's-- again, there's this sort of philosophical, psychological mindset with a lot of consumers and consumer investors that changes. It's not going to change institutional investors and the big investors. They know what's going on. But I think it's a different story when we're talking about sort of the smaller investors out on the fringe, so to speak, in terms of-- it's smaller in terms of size. That's all I meant by that, by the way.