Penny Stock or Blue Chip ?

The numerical value that a stock trades at is irrelevant. The business drives the stock price not the other way around. Many investors are enamored by stock splits. Stock splits cost money and thus are a drag on the stock price. Berkshire Hathaway’s stock has never split for at least 40 years and now trades for $100,000 per share. It is one of the best long term performing stocks on the New York Stock Exchange without one stock split.

Take our Indonesian investments. In New York, Telecom Indonesia trades for $36 per share. On the Jakarta Exchange, the stock trades for 8,300 Rupiah per share or about 90 cents per share. Does this make Telecom a penny stock? If stock splits are good, then would a stock split on the Indonesian shares help the share price on the New York Stock Exchange? Of course not. In the long run Telecom’s shares will rise based on how well the earnings and dividend grows. The growth of those things will depend on how well the business is run and the future growth rate, not stock splits.

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