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Investors looking for positive indicators of a stock’s future performance often consider a stock split a good sign. As a technical matter, a stock split changes nothing about a company’s performance or value. True, per share numbers must be adjusted, but the underlying revenues and profits aren’t altered—just the per share statistics. Still, companies often split their shares when the stocks have appreciated to the point where investors may question an investment because of limited capital. So, by splitting the shares, the stock becomes more appealing to a broader group of investors and, it is believed, that pent up demand for what is already a pricey stock, based on a relatively high price, will help spur the price higher after the split. 

Of course, stock prices don’t always continue to ascend after a stock split.  And, there are times when companies with low share prices use reverse stock splits to boost share prices above exchange minimums so that they may remain listed.  So, a stock split is not the sole criteria by which a company should be judged.  That said, it is an interesting indicator that more research about a company could be worthwhile. 

Every week on the back page of the Ratings & Reports section of The Value Line Investment Survey is a list of upcoming stock splits.  Some upcoming stock splits to consider are ResMed (RMD) and Tractor Supply (TSCO).

ResMed

ResMed develops, manufactures, and distributes medical equipment for treating, diagnosing, and managing sleep-disordered breathing and other respiratory disorders. Sleep-disordered breathing includes obstructive sleep apnea and other respiratory disorders that occur during sleep. It markets its products in over 70 countries through a combination of wholly owned subsidiaries and independent distributors. Research and development accounted for 6.9% of sales in fiscal 2010.  The company employs about 3,200.

The company is reporting wide top- and bottom-line gains quarter in, quarter out. In the June period, revenues were $291.6 million, a 16% year-over-year increase. ResMed performed well at home and abroad, though unfavorable currency translations weighed a bit on international sales. Net income rose 17%, to $53.2 million, despite increased research and development and SG&A outlays. Profits benefited from a more lucrative product mix and increased manufacturing efficiency.  Studies continue to show a strong relationship between sleep-disordered breathing and cardiac disease, diabetes, hypertension, etc., and the company has been very proactive in getting the word out to doctors around the globe. As more physicians and patients become aware of these correlations, the market for ResMed's products will likely grow at an even faster pace.  The ex date for these shares’ 2 for 1 stock split is August 31st.

Tractor Supply

Tractor Supply is a specialty retailer supplying the lifestyle needs of recreational farmers and ranchers. It also serves tradesmen and small businesses. The company provides livestock and pet products (39% of 2009 sales), seasonal products, such as snow blowers and mowers, (23%), truck and tools (18%), clothing and footwear (10%), agriculture (6%), and gifts and recreation products (4%). It operates 948 stores in 44 states, generally in rural communities.  The company has more than 13,000 employees.

Tractor Supply shares have more than doubled since their March 2009 nadir, bolstered by strong 2009 earnings, and favorable 2010 bottom-line prospects. This year's start was much stronger than the investment community anticipated, helped by favorable weather and strong traffic trends driven by sales of consumable, usable, and edible items (notably animal feed and pet food). The company is unique. We believe it has major store expansion potential, the balance sheet to make it happen, and no direct national rivals (it's also three times larger than the next five privately held farm stores).  The ex date for Tractor Supply shares’ 2 for 1 stock split is September 3rd.

Recently Split

Joseph A. Bank (JOSB) shares split 3 for 2 on August 19, 2010.  The company is a designer, retailer, and direct marketer of men's tailored and casual clothing and accessories. The company sells substantially all of its products exclusively under the Jos. A. Bank label through its 473 retail stores. Its stores are located in 42 states and the District of Columbia. It also has a nationwide catalog and Internet operations.


At the time of this article's writing, the author did not have positions in any of the companies mentioned.