Philex stock price fell from P9.40 to P7.50 in one day!
March 4, 2008
Early this morning, I panicked after logging in to my BPITrade online trading account because one of my holdings, Philex Mining Corporation (Stock Code: PX) was trading at P7.50 per share.
You can’t blame me. Only yesterday, the stock was trading at P9.40 and a P7.50 market price means a steep one-day decline of 20% (read: f*ck! I’m losing a lot of money in just one day!). At P7.50, I stand to lose money because I originally bought PX shares at P8.80.
I scoured local news websites for any update on what caused Philex’s price to drop. I found nothing. Is this the end of my trading account? Should I just accept the fact that I lost a lot of money in this stock?
Fortunately, I chanced upon a site that mentioned that today, March 4, is the ex-dividend date (or ex-date) of PX. Let me backtrack a bit.
I know that last month, PX announced that they are distributing 30% stock dividends to all common stockholders. I also know that anyone who purchases shares on or after the ex-dividend date is not eligible to receive dividends. What I didn’t know, however, is that the price adjustment resulting from the stock dividends is going to happen from today.
Apparently this is what happened with regard to the price of PX. First, we’ll need to understand the concept of market capitalization. Market capitalization measures the economic size of a company by multiplying two figures — one, the current market price of the stock; and two, the total number of shares outstanding.
Yesterday, PX closed at P9.40 per share and with more than 3 billion shares outstanding, the market capitalization of PX stands at P28.2 billion (P9.40 * 3 billion shares).
Now, on to the concept of stock dividends. Dividends are distributions of a company’s profit to stockholders. If dividends come in the form of cash, they are called cash dividends. If they are in the form of additional shares of stocks, they are called stock dividends.
On February 21, PX declared a 30% stock dividend payable on April 4, with ex-date on March 4. A 30% stock dividend effectively increases by 30% the total number of shares. For example, if an investor originally has 1,000 shares of PX, after the payment of the stock dividend, he will have 1,300 shares at no additional cost.
Initially, PX has 3 billion shares. Because of the 30% stock dividend, it will now have 3.9 billion shares.
An important point about stock dividends, though, is that they DO NOT affect market capitalization in any way. Remember that PX’s market capitalization remains at P28.2 billion. But now that 3.9 billion shares are outstanding (as opposed to 3 billion prior to the distribution of stock dividends), the market price has to decrease in order to adjust with the increase in number of shares. Thus, P28.2 billion market capitalization divided by 3.9 billion shares yield a price per share of around P7.30.
That is, after considering stock dividends, the market price of PX should be P7.30.
Wait, didn’t PX close today at P7.50? That means I actually gained profit today, not lost money! Hooray!
Whew! It does pay to listen to your Finance or Investments classes once in a while.
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March 5th, 2008 at 8:46 am
Generally one invests for the long term. Unless you are a day trader, you want to weather the ups and downs that your investment takes. Pulling all your money out of a falling stock, unless you know the company is tanking, is a bad idea. Rather, it’s at times like these where you want to buy more of the stock (”buy low, sell high”). So, while it is good to do some research to see if the company is in its death throws, don’t worry so much if your shares lose a few pesos.
March 5th, 2008 at 8:54 am
hehe. kala ko kung ano nangyari! :)
congrats!
March 5th, 2008 at 11:39 am
It’s good you actually did not take a loss over philex. Usually companies who declare stock dividends wanted to rev up their share. Market does not really react the way the company expected it to be.
To avoid future surprises, I suggest you should assess when you buy a share the price you will sell it (high or low). When shares lose value, you sell it to limit your losses or when shares increases in value, you sell it to realize a gain and not waiting to lose it up again. Just determine your selling price right at the time you purchase the shares.
March 5th, 2008 at 4:51 pm
hi.. pwede makahingi ng tulong. i have a personal paypal account. kaso someone paid me through credit card. I can’t accept the money without upgrading. I seldom accept payments from credit cards. should i upgrade to business account?
ano ba ang fees if lets’ say ngwithdraw ako to my eon accoun using business account in paypal? thanks PMT
March 7th, 2008 at 3:38 pm
Hi, so does this mean that your number of PX-shares increased since the price dropped to 7.30?
March 8th, 2008 at 4:52 pm
i’m confused..so technically you did lose some money right?
March 10th, 2008 at 10:46 am
Nope, because I’ll be getting additional shares of stock due to the 30% stock dividend. The additional shares compensate for the drop in the price.
March 10th, 2008 at 10:49 am
Yup, that’s the idea. However, since the payment date of the stock dividend is on April 4, the additional shares are still not credited to my account but will be a month from now.
March 14th, 2008 at 10:30 am
wish i listened more in my financial ek ek classes :(. well moving on!