Why and how the share price of MRF is too high ???

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(Edited)

Do you know, what price MRF is trading today ???

Its around 64000 rupees.

Look at the chart below !!!!

Source

So its overpriced or more expensive?

Let's consider a situation with real estate :

A 1,00 sq feet plot priced at 1 lakhs or a 5,00 sq feet house priced at 5 lacs.

If you will look at the both scenario, both of them are worth the same i.e. 1000 rupees per sq feet. The only difference is the second property is bigger.

So lets apply the same concept to the shares of different reputed companies.

MRF has only 4.2 million open shares in market. At the same time Infosys has a share of 2.2 billion.

So for simplification , 4.2 mil looks like 4,200,000. where as 2.2 billion looks like 2,200,000,000. Now you have spotted the difference ??

Again 1 more example to make your concept clear ....

The market cap for MRF is 27,000 crores and the price of single share of MRF is 64k. At the same time another company in auto sector Ashok Leyland has a market cap of 24,000 crores, while the single share is worth only 80 rupees.

So both of them having almost same market cap has a huge price difference, right ???

But why ?

Its because of the number of outstanding shares.

More shares of a company = lower price of a single share and vice versa ..

Try to understand the above with an example :

Consider a cake of 1 KG. If you cut the same into 6 pieces, the size of each piece will be bigger compared to,if you consider to cut the same cake into 8 pieces ..


Usually when a stock price goes to a high level like 3,000 rupees or so, company splits it share. Simply if you have 50 stocks of a company with share price of 3000, then after the split you ll receive 100 shares of the same company, where as each share will be worth 1500 only.

But why does split happens in shares ?

Usually to attract retail investors. Who cant afford to buy a share with huge price. You may not buy 1 share of MRF, but can afford to buy 100 shares of Ashok Layland.

High price of MRF shares simply shows that, it never splits its shares. Thats the simple and most basic answer.

Consider infosys. If it would not have splited its share for ever, then each share of infosys would be more costlier than even MRF. But they split their stock every time, it reaches around 2000.

Look at the split happens in infosys in the recent time in below chart, it is shown by "S" in the graph.

Source

So whay company adopt these strategy ???

You must be thinking what is benefit of keeping retail investors away from the investing in company ??

It helps companies like MRF to keep speculators away, which is always good.

Again the investors in such companies stay invested for long time, the best and most essential part of investment.

Hope you like the article.



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