Splits
Does not impact the overall market cap of the company
Splits are often used to
Split vs Reverse Split
Split
When a company increases the number of its shares to boost the stock's liquidity; think about the difference between the bid and ask price on higher priced stocks.
Although the number of shares outstanding increases by a specific multiple, the total dollar value of all shares outstanding remains the same because a split does not fundamentally change the company's value.
eg. Share price is $2000 and there is a 1:20 Split; you not get 20 shares for each share you own (new share price $100)
Reverse Split - This is often viewed as a weakness of a company.
Consolidates the number of existing shares of stock held by shareholders into fewer shares.
A reverse stock split does not directly impact a company's value (only its stock price)
It can signal a company in distress since it raises the value of otherwise low-priced shares
eg. Share price is $10 and there is a 3:1 Reverse Split; for every three shares you get one share (new share price $30)
Historical return over the past year, 5 years, and 10 years
How often a stock has split or reversed split
Should you purchase before or after the Split?
Generally speaking you would want to enter your position when the news comes out if the stock trending up
If it starts to go down, simply sell your position at your cost and wait for a better entry
If you missed the announcement and move upwards, you may want to wait until after the split to enter
Similar to entering when the news first comes out, enter after the split and exit if it falls below your cost to enter and wait for a better entry
What to Consider about IPOs
Who are their competitors (eg. Costco to Sams Club, NVDA to AMD, McDonalds to Burger King)
Do they offer something that is innovative or streamline a process?
In comparison to closely related competitors, what is the IPO Market Cap (share price by #Oustanding Shares) and how does it relate to competitors?
Are they overvalued or undervalued?
Are they based on actual data and sales figures or on future sales and predictions?
How to Play an IPO
At market open, you are to play the IPO as you would for day trading
Its entry point should be your entry and stop loss (Wait for the first 10 minutes to 1 hour to see the opening range)
More conservative approach would be to wait one day to determine the opening range
As long as it trends above your entry you are safe; simply establish your take profit areas
When to Exit
For any IPO, always exit if it goes below its opening range (day) of trading (you may also consider week and month)
Anytime an IPO goes below its opening range it is less likely to recover quickly
With limited data, and most likely poor news (catalyst) that is causing the sell off, you are better off shorting the position
Drop below IPO Range Low
Whenever I see a stock drop below its IPO I will often short the stock for some easy money. Beware of the pulback into the IPO range low before it typically continues down again.
In many cases, I have seen IPOs tank for weeks to months before recovering; some never recovering