Under Armour

Under Armour Inc. Stock Split!!

So a while ago I did a company review of Under Armour and how much of a great company I thought it was. Nothing has changed about how I feel about the company, but this might be the first time since blogging something in my portfolio will be going through a stock split. And that in turn provides the best opportunity for me to explain to you exactly what that means. Now this particular stock split is a bit abnormal in how the shares will be differentiated, but I expect that you good people will bear with me as I explain.

A stock split happens when a company wants to attract more investors by splitting up the current outstanding shares of the stock in to parts without changing its value. And by doing so, the price of the stock is also divided by the same multiple by which the shares increased. For example, say hypothetical Company X’s board of directors just approved a 2 for 1 split of the current 1 million outstanding shares. The current price is $100. Here is how the stock split will effect market price and outstanding shares:

Company X Before 2 for 1 Split After 2 for 1 Split
Outstanding Shares 1,000,000 2,000,000
Price per Share $100.00 $50.00
Market Capitalization $100,000,000 $100,000,000

Simple enough right? The company still  maintains its full market capitalization value, but offers its stock price to attract small investors. Under Armour is taking this a step further by saying the new shares that will be offered will not have voting rights. So if my hypothetical Company X does what UA is doing, this is what the numbers look like:

Company X Before 2 for 1 Split After 2 for 1 Split
Class A Class A Class B
Outstanding Shares 1,000,000 1,000,000 1,000,000
Price per Share $100.00 $50.00 $50.00
Market Capitalization $100,000,000 $100,000,000
Voting Rights Yes Yes No

In the case of Under Armour, for every share a current Class A or Class B shareholder has, they will get a non-voting Class C share. Now companies can also do what is called a reverse stock split where they decrease the number of outstanding shares and up the price. Companies generally only do this to increase the earnings per share for existing shareholders. We can talk about that at a later date. I was just excited to share the news of UA dropping its prices for new investors without having to worry about making proxy votes.

Until next post…

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