Topline
Amazon became the latest mega-cap tech giant to announce a stock split this week, and with increasing news shares — similar to Google-parent Alphabet after it split last month — experts predict it could become a growing trend, along with some other highs. -appreciate companies that may be next.
More mega-cap companies could see value in splitting their stock, experts predict.
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Basic Facts
Amazon shares jumped more than 6.5% on Thursday following the announcement of a $ 10 billion buyback and 20: 1 stock split, its first since the dot-com boom in 1999, which will take effect in June 2022.
Amazon has become the latest high-value tech company to see its share price rise following the stock split, following in the footsteps of Google-parent Alphabet’s 20: 1 split last month, the 5: 1 Tesla’s split in August 2020 and Apple’s 4: 1 split in July 2020.
“The‘ caché ’of having a very high stock price is disappearing,” and after years of seeing very little stock split, that trend could come back again, says Neil MacNeale III, an expert investment advisor in the stock split.
While traditional Wall Street wisdom says that stock splits don’t change a company’s market value any more than making the shares more accessible to day-to-day retail investors, there is evidence that the transition provides short -term reinforcement.
Stock splits have historically led to better stock price performance, according to analysts at Bank of America who pointed out that since 1980, S&P 500 companies that have pursued splits tend to see shares that exceed the index three, six and 12 months after the announcement.
MacNeale calls this phenomenon the “stock split advantage,” where companies that announce splits outperform the market by a few percentage points, even if the effect is only in a limited period of time, that strengthening is gone after a few years, he says.
What to Watch:
Which companies can announce stock splits next. According to Bank of America, these S&P 500 companies with the highest share prices are among the most likely to follow the stock split announcement: Home construction company NVR (traded at nearly $ 4,800 per share), travel company Bookings Holdings (trading above $ 2,000), car retailer AutoZone (trading at nearly $ 1,900) and fast-casual burrito chain Chipotle (trading above $ 1,400). The company thinks electric-vehicle maker Tesla, which split its stock in 2020, could do so again because the shares are currently trading at more than $ 800. Other viable candidates, according to Vital Knowledge founder Adam Crisafulli, include asset manager BlackRock (traded at $ 700 per share), chipmaker Broadcom (traded at nearly $ 600) and software company ServiceNow (traded of more than $ 500).
Surprising Fact:
Stocks that announced a stock split on average rose 25% over the next 12 months, compared to 9% for the broader S&P 500, according to Bank of America.
Important Quote:
Stock splits are a great way to generate headlines and buzz about a stock, MacNeale points out. “It’s a way for people to talk about a company — and corporate leadership teams can rediscover it after maybe forgetting about it for years.”
Chief Critic:
“While it doesn’t matter AT ALL for the basics, investors will love the stock split (even in the near term),” said Crisafulli, who pointed out that after Google’s recent split, many investors are hoping that Amazon will announce a similar move. “Overall, the news is really not something to stimulate everyone,” he said, adding, “it’s not the ’90s or the pandemic tech bubble: don’t chase the rally.”
Additional Reading:
Alphabet Rises 10% After Earnings Blowout, Here’s What a 20: 1 Stock Split Means For Investors (Forbes)
Alphabet’s Historic Stock Split Means More Investors Can Buy Shares — But Here’s What Analysts Say (Forbes)
These Energy Stocks Rise As Oil and Gas Prices Continue to Rise Without Relief In Sight (Forbes)
War Stocks Rise As Russia-Ukraine Conflict Continues: Lockheed Martin, Northrop Up 20% (Forbes)
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