Too Many Shares Outstanding?

Q: I see that ExxonMobil hasn't split its shares since 2001. Is that because it has too many shares outstanding already?

- K.R., Martinsville, Ind.

A: It doesn't typically work that way. Splits often take place when a stock's price is deemed "too high." Splits are, to some degree, a psychological event, making the stock look "cheaper" and possibly attracting more investors. If stocks never split, then a single share of some big companies such as Coca- Cola would cost as much as a car or house.

ExxonMobil does have a lot of shares - more than 5 billion. (Microsoft has more than 9 billion shares, while General Electric has roughly 10 billion.) But then its revenues and profits are huge, too. In 2007, it raked in more than $400 billion in revenues and netted a $40 billion profit. Per share, that's $7.28. What really matters is how strong the firm is, how quickly it's growing, how successfully it's competing, and how each share's value is increasing. Earnings per share for 2007 were up more than 400 percent over 1997 levels.

Q: Is it smart to buy more shares of a stock when its price has fallen?

- S.T., Newark, N.J.

A: This is called "averaging down." It's often regrettable, because there's frequently a good reason why a stock is dropping. There are some exceptions to this rule, though. For example, perhaps the entire market has swooned, taking your holding with it. Or maybe the market has significantly overreacted to your company's latest news, sending its shares down to levels you don't believe are justified. If so, you can snap up some bargainpriced shares. Before you average down, always take the time to re-evaluate the business.

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