Effect on Price on issue of Bonus Shares

#1
Dear Seniors,

I have a question on bonus issue. A company has announced robust earnings for 2005 with net profit crossing the $ 1 billion mark and total assets growing to $ 26.3 billion. The board of directors has proposed bonus shares of between 15 per cent and 25 per cent as cash dividend.

The shares are currently traded at 24 (face value 1). What could be the probable effect on its market price and what should a short-term trader do?

Thanks
 
#2
Well
Freind as u have mention that company is planing to declare bonus so no of equity share will increase as a result eps will come down and so the cmp because stock will look relatively costly at present P/E ratio so price will come down and it will be burden on company in terms of generating previous level of earning since outstanding shares increased and with same level of topline growth it cannot generate same eps.
 

columbus

Well-Known Member
#4
normally the price will be halved immediately. but gradually the price will go up.when bonus is declared ,it is a good time to buy shares.
This may hold GOOD for heavies like RIL, LT,SBI, HDFC .......etc but a big NO
to penny stocks.
 
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