recently announced the split of its shares. It probably won’t be the only company to do so in the near term, and that’s good for the stock market.
) announced in its February 1 earnings release that it was doing a 20-for-1 stock split. This means that on July 15, shareholders will receive an additional 19 shares for each they hold on the date. July 1 registration. This also means that the price per share would be divided by 20, which now implies a price of $138, given a recent price of $2,758. Remember, nothing affects the market value of the company, which is still just under $2 trillion. Thus, the value of Alphabet’s equity that each shareholder holds does not change. Only the share price will fall when the split is instituted because there will be no more shares.
The idea is for the company to make it more accessible to retail investors, those on popular trading platforms such as
(HOOD) and TD Ameritrade – to buy more stocks because these investors typically don’t have deep pockets. The announcement may have helped spark interest in the stock; it jumped 7.6% the day after the earnings release, although part of the rise was also attributable to the company’s higher-than-expected profit.
Expect more stock splits from other companies, Bank of America says. It’s because
S&P500 stocks with a stock price of $500 or more represent over $6 trillion in aggregate market value, or about 17% of the total value of the S&P 500. The idea is that there are many companies that could see increased investor interest if they lower the absolute price of their shares. And Alphabet’s announcement may have been the catalyst for other companies to take action. The company’s “recent 20-to-1 announcement could grab the attention of other companies and set off a wave,” wrote Jared Woodard, investment and exchange-traded fund strategist at Bank of America.
If Woodard is correct, these stocks would perform strongly and could also lift the S&P 500. Historically, companies that announce stock splits see their stocks gain 7.8% on average over the next three months, beating the 2.1% gain in the S&P 500 over this period. A year after an announcement, these shares are up 25%, better than the index’s 9%. And right now, such big gains in the stocks that make up such a big part of the index would certainly help the index gain.
Here are some candidates – following the logic of Bank of America – for stock splits:
(AMZN) has a stock price of $3,140.
), the parent company of Booking.com, Kayak, Priceline and OpenTable, has a stock price of $2,647.
Chipotle Mexican Grill
(CMG) is trading at $1,584. Financial Index Provider Shares
) are trading at $544, and
The stock price of (BLK) is $782.
Write to Jacob Sonenshine at [email protected]