Posted on Tue, May. 6, 2008
Q: I see that Exxon Mobil Corp. hasn't split its shares since 2001. Is that because it has too many shares outstanding already?
- K.R., Martinsville, Ind.
A: It doesn't typically work that way. Splits often take place when a stock's price is deemed "too high." Splits are, to some degree, a psychological event, making the stock look "cheaper" and possibly attracting more investors. If stocks never split, then a single share of some big companies such as Coca-Cola Co. would cost as much as a car or house.
Exxon Mobil does have a lot of shares - more than five billion. (Microsoft Corp. has more than nine billion shares, while General Electric Co. has roughly 10 billion.) But then its revenues and profits are huge, too. In 2007, it raked in more than $400 billion in revenue and netted a $40 billion profit. Per share, that is $7.28. What really matters is how strong the company is, how quickly it is growing, how successfully it is competing, and how each share's value is increasing. Earnings per share for 2007 were up more than 400 percent over 1997 levels.
Q: Is it smart to buy more shares of a stock when its price has fallen?
- S.T., Newark, N.J.
A: This is called "averaging down." It is often regrettable, because there is frequently a good reason a stock is dropping. There are some exceptions to this rule, though. For example, perhaps the entire market has swooned, taking your holding with it. Or maybe the market has significantly overreacted to your company's latest news, sending its shares down to levels you do not believe are justified. If so, you can snap up some bargain-priced shares.
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