Topline
Amazon became the latest mega-cap tech giant to announce a stock split this week, and with shares rising on the news—much like Google-parent Alphabet after its split last month—experts predict this could become a growing trend, with several other highly-valued companies that might be next.
More mega-cap companies could see the value in splitting their stock, experts predict.
Sebastien Bozon/AFP via Getty Images
Key Facts
Shares of Amazon jumped over 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 go into effect in June 2022.
Amazon became the latest highly valued tech company to see its share price surge following a stock split, following in the footsteps of Google-parent Alphabet’s 20:1 split last month, Tesla’s 5:1 split in August 2020 and Apple’s 4:1 split in July 2020.
“The ‘caché’ of having a very highly priced stock is wearing off,” and after years of seeing so few stock splits, that trend may be picking back up again, says Neil MacNeale III, an investment advisor who specializes in stock splits.
While conventional wisdom on Wall Street says that stock splits don’t alter a company’s market value beyond making shares more accessible to everyday retail investors, there is evidence that the move provides a short-term boost.
Stock splits historically lead to better stock price performance, according to analysts at Bank of America who point out that since 1980, S&P 500 companies that have pursued splits tend to see shares outperform 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 several percentage points, though that effect is only for a limited period of time, with the boost wearing off after a few years, he says.
What To Watch For:
Which companies could 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 be next in announcing a stock split: Home construction company NVR (trading 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 firm speculates that electric-vehicle maker Tesla, which split its stock in 2020, could do so again as shares currently trade at over $800. Other viable candidates, according to Vital Knowledge founder Adam Crisafulli, include asset manager BlackRock (trading at $700 per share), chipmaker Broadcom (trading at nearly $600) and software company ServiceNow (trading at over $500).
Surprising Fact:
Stocks that have announced a stock split on average rose 25% over the next 12 months, versus 9% for the broader S&P 500, according to Bank of America.
Crucial Quote:
Stock splits are a great way to generate headlines and buzz around a stock, MacNeale points out. “It’s a way to get people talking about a company—and corporate leadership teams might be rediscovering that after maybe forgetting about it for a few years.”
Chief Critic:
“While it doesn’t matter AT ALL for fundamentals, investors will like the stock split (at least in the near-term),” says Crisafulli, who points out that after Google’s recent split, many investors were hoping Amazon would announce a similar move. “Overall, the news really isn’t anything to get all that excited about,” he says, adding, “it’s not the ’90s or the pandemic tech bubble: don’t chase the rally.”
Further Reading:
Alphabet Surges 10% After Blowout Earnings, Here’s What The 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 Are Surging As Oil And Gas Prices Keep Climbing With No Relief In Sight (Forbes)
War Stocks Are Surging As Russia-Ukraine Conflict Rages On: Lockheed Martin, Northrop Up 20% (Forbes)
