Monday, 16 February 2015

Let's find out - Should one consider FACE VALUE before buying into a stock

In this series let's explore if Face value should be considered while picking a stock.

Most would already have witnessed that companies split the stock to increase liquidity once stock price is high. Also, how announcements of stock splits further fuel stock prices in most cases. And after split liquidity adds more to the price.

For good companies stock splits mostly works as a good strategy to increase market cap.

Also had come across a research report some time back, which demonstrated that historically stock splits have worked better than bonuses (will try to find the article).

However, many stocks in the market are of F.V 1 and many below F.V 5.
And stock can be split from 10 to 5 to 1 or 10 to 2 to 1 only.

Once F.V reaches 1 company can only issue bonus to bring in somewhat the same effect as a stock split.

Would be exploring more about this question.

In the meantime please share in comments if you feel same and if any really good company would soon hit this case. Also could this limit appreciation of the stock price in future? What strategies could be applied to overcome this and inject liquidity into the stock.

Which one will you prefer TCS at FV 1 or INFY at FV 5?

*********This post is intended only for understanding and knowledge sharing. Corrections and value addition from readers are welcome.*********

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