This is about to change.
The split, which takes effect on Monday, will be a 20-for-1 transaction, which means if you own one Amazon share, you’ll end up with 20 shares after the split that each cost about 1/20 of the previous price. So the value of your investment doesn’t change, and an Amazon stock that’s trading for just under $2,450 will become 20 shares each costing just over $120.
Why is Amazon doing this now? Companies with high stock prices often announce splits in order to make the shares appear more affordable to retail investors. Google and YouTube owners the alphabet (google)which is trading at more than $2,300 and has a market capitalization of about $1.5 trillion, has also agreed to a 20-1 split that will occur in July.
Online retailer Shopify (a store) With a 10-for-1 stock split planned for later in June, while Tesla (TSLA) The stock meme darling Jim Stop (GME) They suggested dividing their stocks as well.
But here’s the thing: even though a stock split might lead to it It seems Like the stock is now more affordable, it doesn’t make the stock cheaper when looking at valuation metrics like price-to-earnings or price-to-sales ratios.
Amazon will still be worth about $1.3 trillion after the split. The stock will still trade at more than 150 times earnings expectations for this year and nearly 2.5 times its estimated sales for 2022 — much higher percentages than the broader stock market as well as other retail industry leaders such as Walmart (WMT) And the targeting (TGT).
Many individual investors who wanted to own growth stocks like Amazon, Google, and Tesla often had to buy fractional shares (i.e. parts of a single share) or have exposure to these companies through exchange-traded funds like the SPDR S&P 500 ETF or the Invesco QQQ ETF, Which tracks the Nasdaq 100 Index.
That’s why accessing stock prices for four-figure stocks is a “smart move,” according to Michael Mulaney, director of global markets research at Boston Partners. This would allow more investors to buy so-called round contracts (100 shares) of a company rather than just a handful of shares.
“Retail investor trading has increased dramatically over the last year and a half and is becoming very important again. It’s not just the big institutions and hedge funds,” Mulaney said. “But it is impossible for the average investor to buy 100 shares of some of these stocks at these prices.”
Professional investors have taken note, too. Amazon stock is up nearly 6% in the past week, as some traders may look to buy before the split takes effect. (Amazon is still down more than 25% this year.)
An Amazon and Alphabet stock split could serve another purpose, too: It might increase the chances of both companies eventually being added to the Dow Index.
This prestigious group of 30 leading American companies is a price weighted rather than a market capitalization weighted index. Therefore, according to their current stock prices, Amazon and Alphabet cannot be added to the Dow without having a significant impact on the daily movements of the index.
United Health (United nations)which is trading at less than $500 per share, currently has the largest weighting in the Dow Jones Index, followed by Goldman Sachs (p) And the Home Depot (HD)which each trades at over $300.
The rise in its share price was one of the main reasons for this apple (AAPL) It wasn’t added to the Dow until 2015, several months after a stock split had pushed its price from the top of the triple digits to below $100 a share.
So looming splits between Amazon and Alphabet could pave the way for these tech giants to join Apple and Microsoft, the only two US companies with a higher market capitalization than Amazon and Alphabet, in the Dow.
Inflation finally peaking?
Big tech stocks aren’t the only things with inflated prices. Consumers and businesses have coped with higher prices for goods and services over the better part of the last year. Investors will get another look at how prices will rise when the US government releases its latest Consumer Price Index (CPI) numbers on Friday.
Prices are up 8.3% in the past 12 months to April. But that increase, while still stubbornly high, was the first drop in year-over-year consumer inflation since August. Consumer prices rose 8.5% in the twelve months to March. So economists hope that the level of price increases will continue to taper off over the next few months.
However, it may take some time for consumer prices to reach a level that is more comfortable for shoppers…and the Federal Reserve. The Fed would ideally like to see the CPI slow to around 3% to 3.5%, if not lower, before the announcement
a Victory over inflation.
“The good news is that inflation numbers should start to fall,” said Ken Shinoda, portfolio manager at DoubleLine. “The question is will they come down enough?”
Monday: Amazon stock split. Apple’s Worldwide Developers Conference kicks off.
Tuesday: earnings from United Natural Foods (UNFI)And the smoker (SJM) And the General Casey (bag)
every wednesday: earnings from Campbell’s soup (CPB)And the Brown Foreman (BFBB)And the Initial deal executor (OLLI) And the five below (five)
Thursday: European Central Bank meeting on interest rates; US weekly unemployment claims; earnings from New (NIO)And the ring jewelry (GIS)And the Villa Resorts (MTN)And the DocuSign (DOCU) And the stitch repair (SFIX)
Friday: Bank of Russia meeting on interest rates; US Consumer Price Index; Consumer confidence in the University of Michigan in the United States