GE Stock Split: Is there a possibility of a Stock Split?
GE Stock Split: GE went through a reverse split in 2021, is there a possibility of a stock split sometime soon?
GE Stock Split: Background and History of Past Splits
General Electric Co. (GE) has traded publicly for at least 1896, and it was one of the first 12 companies to constitute the Dow Jones Industrial Average. Since then GE has been one of the main constituents of the index, although it has been in and out of it, the company’s removal from the index in 2018 was a major blow and there seems no possibility of returning back any time soon. Talking about stock splits, GE has a history of stock splits and its stock has undergone 8 splits since it began trading. The history is tabulated below:
|Stock Split Ratio||Date of Split|
GE Stock Split: Inferences from Past Splits
- GE announced its first stock split in 1971 and continued doing so for the next three decades before ignoring the topic for the next 19 years. It had an unusual split of 104:100 in 2019 after 19 years.
- Stock splits are meant to give a short-term push to the stock, but in the case of GE, it has received a mixed reaction from the investors and not all the splits were in favor of the company. For example, on the following day after the 1971 split stock tumbled 3.43%, trading at $59.63 compared to $123.50 a day before, considering a 2:1 split. However, it has been observed that a couple of splits like in 1987 and 1997 gave a reasonable boost to the stock price on the following day. In 1987, it was up by 5.47% (trading at $53 compared to $100.50 on the previous day) and in 1997, it was up by 2.78% (trading at $ 59.87 compared to $116.50 on the previous day).
- The first six splits were announced when the stock price was in the range of $100 -150. The last two splits were unusual, but GE followed the major trend of that decade, splitting the stock as and when it crossed $100 making the stock more attractive for small retail investors. But at this juncture, it needs to be kept in mind that technically split does not impact the company’s valuation in any matter. Reducing the price creates a psychological impact and lures retail investors looking to invest a small amount to grab at least a couple of shares for their portfolio.
GE Stock Split: The Reverse Split in August 2021
GE was the darling of the stock market before the dot-com boom. GE’s share price peaked at an all-time high of $465. After Welch was replaced, the stock fell 90% from its all-time high.
The stock price fell to $12 around June 2021, it was when the GE board recommended the reverse stock split. In simple terms, it multiplied the stock price by 8 and reduced the number of outstanding shares by 8. The pre-split-adjusted price was $12.95 and after the reverse split, it began trading at $103.75 on August 2nd, 2021. This reduced the number of shares from approximately 8.8 billion to 1.1 billion. Also, no fractional shares were issued in executing the reverse stock split, and the shareholders were given cash payments in lieu of fractional shares which remained after issuing 1 share for every 8 shares held by a particular shareholder.
While there can be multiple reasons for a reverse stock split, it is primarily executed for the same reason as a stock split i.e. positive sentiments.
Nearly a year ago, GE was trading in the range of $10-$15 and could have been called a penny stock. By doing a reverse split, the company share price has gone beyond $100 and that is something that goes with the image of GE as a company. Along with this announcement, the company also announced its intent to divide itself into three companies GE Healthcare, GE Power and GE renewable energy will be spun off from the company to form another company and the remaining GE will only be an aviation-focused company. This combined step is a statement from management that the past is past and that they are focused to deliver value to shareholders
GE Stock Split: Possibility of Future Stock Split
It has been a forgettable journey for GE for the past two decades, with the stock going down by more than 90% and earnings drying up year after year. There is a very small possibility for a normal stock split. The reasons are as follows
- It will not be advisable to go for a normal split post-reverse split.
- The stock price has not sustained $100 post reverse split and is trading at $74.55 (as of 29th April 2022)
That said, there is a possibility of a reverse stock split if the share price goes below $50 in the coming months/years. The split either normal or reverse is only meant for a short-term push and it is high time for GE to regain its lost dominance on the global front and in the US stock market.
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