In this one, I plan to focus on a subset of these companies, the FANG (Facebook, Amazon, Netflix and Google) boutiques s, younger companies that have soared in value over the last decade, and two other tech companies of longer standing, Apple and Microsoft. I find the construct of a corporate life cycle useful in explaining the evolution of companies over time, in both corporate finance and valuations. Some Wall Street strategists expect growth stocks’ earnings momentum to carry them to strong gains, and argue that valuations have become more reasonable in the past several months. It is conceivable, and perhaps even likely, that the split will keep the momentum going for the near term, and that you can take advantage by buying today and holding for a period. The problem with momentum is that it is fickle and for those who bought the stock expecting the stock split to be their big payday, if the results fall short of expectations, there will be disappointment. However, if you are a trader and you play the momentum game, this is your moment of maximum pain and gain.

If you are an investor, nothing that happened on August 31 should alter your views on the company. I know that many Tesla bulls are awaiting its inclusion in the S&P 500, and with the full recognition that I will be wrong in hindsight, there is nothing that leads me to be believe that it will be a game changer for the company. 3) Capital budgeting analyses typically assume a constant cost of capital, even though the analysts know it will change. The worst performing sectors are energy, real estate and utilities, all businesses that are capital intensive and debt laden, and default worries about that debt burden may explain why financials remain the worst performing sector. You can argue that these investors bring very different views on risk and preferences investing, capital structure and cash return than investors in the rest of the market. For instance, this study documents that companies that become part of the S&P 500 tend to behave more like their peer group on dividends and buybacks and become less profitable, after the index inclusion than before the inclusion, and these changes can affect value adversely. Pricing Effect: The pricing argument for index inclusion is that it can increase the investor base for a company, by drawing in investors who invest only in that index (like index funds) or primarily in the index (like many large active institutional investors), and that increase should play out in a jump in stock prices on the stock.

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