We have different Face Value (FV)stocks.They are 100 paidup, 10 paidup, 5 paidup, 2 paidup and 1 paidup.
100 FV are now very less barring couple of them.Usually we have FV of 10 most of the time and then 5 FV , 2 FV and 1 FV.
The reason Co split it to 5 ,2 or 1 paidup is for the liquidity.That is the main reason to do that.When the stock goes so high investors can't buy it so big quantity.eg Titan Ind.It went upto 3700 something and if someone wants to buy 100 shares then he has to dole out Rs.3,70,000.That is a huge amt for small Investor and hence the management decided to split it to 1 paidup so for buying 100 shares one will need only Rs 37,000.
But then the eps will also come down as it will be divided by 10.Once the floating stock become bigger , it takes more time to move up and that is for the simple reason that people trades more and invest less.People trade for 1 or 2 rupees in any counter up or down and hence the prices keeps fluctuating in a rangebound manner as now they can buy 200-300 shares on any day and sell it for 1-2 rs profit.
Well, that is why I use to write here that try to pick stocks which are still 10 paidup or 10 FV.This way we get chance to get splitting of shares which will multiply our holding according to the splitting of shares and hence we have chance to sell part of them and still left with good quantity.
But when we start buying already splitted stock, we need to remember that for earning profit and showing as EPS it will have to earn 10 times more then 10 paidup and for that the Co needs to be so excellent that it can keep matching the bottomline even at 1 FV or 2 FV.It is always comfortable to buy stocks with 10 paidup rather then 1 paidup or 2 paid up as the eps remains high and if the stock is still not spotted by players we have chance of a multibagger return.
Stocks that are splitted has already become multibaggers barring few penny stocks.So expecting multibagger return from splitted stock is a high expectation.
Let me explain it this way.
If a Co stock is 1 FV and have eps of 4 that means the eps is 40 for 10 paidup and hence the price of 1 paid up is also like wise the price is also less but sometimes we get decieved by it in the way that we look at the price and forget to look at Mcap, Sales, EPS etc and as it is quoting low we buy it just like J M Finance and that is my concern and as I wrote above Titan Ind is already a multibagger and still will give multibagger return because it has a strong product line while is acknowlodged internationally but that do not happens with all splitted stocks.
So why get deceived buying 1 FV , instead why not try to buy 10 paidup shares?
It is complex to understand but usually what happens is this splitted up stocks quotes high and if with little slowdown in profit the stocks tank and then it takes lots of time to move back to original levels as the market players has already sold it out and will not tocuh it again.
Just a simple example I can give is again JM Finance and Vijaya Bank.Vijaya Bank is 10 paid up and has an eps of almost 10 and is trading at 5 P/E.The sales is Rs 5844 cr and Mcap is Rs 2450 cr which is quoting at half of Sales/Mcap ratio.That is a good deal.I like Vijaya Bank and it is a buy according to me on every dips.The reason I like is they have collobarted with LIC for insurnace product which I read 1 year or so back.That is a good deal for Vijaya Bank as selling product of Insurance under LIC will do whole lot of good for the bank.If I am wrong, please let me know about it.
So always try to look at the Sales and Mcap ratio and try to look whether it is in favour of Mcap.If Mcap is less then sales then it is a good deal as one can say that the Co is going cheap.
Those who are tracking me must have noticed that I have given many stocks just looking at Mcap/ Sales ratio and have been succesful as well.Ofcourse others things needs to be looked upon but Mcap and sales are very important parametres not to be ignored.
So as written by one of the reader, SEBI can't do anything here.It is company's management decision what to do with their shares.Whether they wants to keep it as 10 FV or wants to split it to 5 FV or 2 FV or 1 FV.