One trend that used to be very popular and faded away was the corporate decision about stock splits. These are supposed to be mechanical issues, which theoretically have no real change to a company’s underlying fundamentals. Splitting a stock price in half to produce twice the number of shares does not change a company’s revenues, net income, gross margin and market capitalization. That said, a strong argument can be made that investors psychologically love stock splits.
After two very high-profile stock splits, the time is ripe for many other well-known, actively traded stocks to announce stock splits. We have some ideas who might be next.
Apple Inc. (NASDAQ: AAPL) broke the ranks this summer by announcing a four-for-one stock split. This was the first stock split since Apple’s seven-for-one stock split back in 2014, which also made it more palatable for inclusion in the Dow Jones industrial average. Apple’s prior two splits had been on a two-for-one basis in the year 2000 and in the year 2005. Apple was trading at $384.07 ahead of earnings (and the split announcement), but the shares popped to $424.28 the next day on earnings excitement, though the excitement of a stock split has helped contribute to at least some of its gains.
Apple’s shares were last seen up at $452.00, and it is no longer a surprise or a guess about when the iPhone 12 is coming out. As for how splits work over time, a fun factoid is that if an investor bought just one share of Apple back in 1987 and never touched it, then that investor would own 224 shares of Apple after this split was effected.
With Tesla Inc. (NASDAQ: TSLA) now claiming it wanted the shares more affordable for investors and employees, without having to spend close to $1,500 for a single share of stock, Tesla has announced a five-for-one stock split, and the stock was up 10% at $1,514.50 in the aftermath of the announcement.
Another argument in favor of stock splits is the inverse case, which is the dreaded reverse-split. This is where a company shrinks its float and increases its stock price, which often is done solely to avoid delisting from the New York Stock Exchange or Nasdaq. It is not just coincidental that short sellers frequently have used reverse stock splits to short more shares at a higher price, or at least have them on less margin.
24/7 Wall St. is not suggesting that every company with a high stock price needs to announce a split. Yet, some stocks that just look and feel like they could use a stock split, based on history, on the cost of their services and on whether or the company wants its base customers to be shareholders as well, beyond just fractional share ownership.
Many investors could argue that there are another 50 or more companies that should consider stock splits, but here we have focused on those that are more widely traded and very well known. We have not suggested how much of a split should be seen, because every company is different. There is also a dark side of stock splits, which is detailed below.
Here are 13 other companies that should seriously entertain splitting their stocks, and some of these are not just the so-called FAANG stocks and other high-flying tech stocks. These all have considerably higher share prices. Key performance metrics have been included for each, along with some additional color.
Amazon: Up Close to 500% in Five Years
Amazon.com Inc. (NASDAQ: AMZN) was last seen trading at $3,154.42, and its 52-week range is $1,626.03 to $3,344.29. It has a $1.58 trillion market cap. Amazon has traded with a hefty price for some time, and in some ways, it may have pioneered the trend of not wanting to make stock splits. That said, Amazon obviously pays no dividend and the history of splits shows that its stock split twice in 1999 and once in 1998, back before the 2000 dot-com bubble burst.
Alphabet/Google: Up Almost 200% Since 2015
Alphabet Inc. (NASDAQ: GOOGL) was last seen trading at $1,504.35, and its 52-week range is $1,008.87 to $1,587.05. It has a $1.0 trillion market cap. Alphabet effected a split in 2014 with the creation of the dual classes of stock. Sadly, most investors today don’t know which is which. Alphabet pays no dividend and likely will not for the foreseeable future.