13 Companies That Should Consider Stock Splits This Earnings Season
Investing in 2020 has been a wild ride. An 11-year bull market was chopped into an instant recession, only to find the stimulus outweighing the COVID-19 destruction enough that stocks managed to hit new highs again. One trend seen at historic highs that used to be very common in raging bull markets was stock splits. Splits are of course a gimmick, but the stock market usually rewards companies for splitting their stocks.
As a company’s stock would rise to levels that the company thought was becoming a high dollar amount, it would magically split its stock and double, triple or quadruple its share count by lowering stock prices by a similar amount.
While stock splits change nothing about the underlying fundamentals of a company, investors love splits, even though they should know it is just a mechanical function around an actual stock price. Splits do not affect revenues, net income, gross margin and market capitalization. Despite this, there is still a very strong argument that can be made showing just how much investors love seeing stock splits.
24/7 Wall St. has tracked two very high-profile stock splits of late. There are 13 additional stocks that easily could split their own stocks after seeing what happened.
The mighty Apple Inc. (NASDAQ: AAPL) conducted a four-for-one stock split, and that was its first since Apple’s seven-for-one split back in 2014. Apple was trading at $384.07 ahead of earnings and the split announcement, but the shares went on to rise more than 10% before coming back down to earth after the split. Tim Cook even suggested that he wanted to share price lower for more investors to be able to get access. So what if it marked a top in the stock. After all, it’s not as if Apple won’t be selling millions of more new iPhones in the coming years.
Tesla Inc. (NASDAQ: TSLA) had claimed that it wants its own shares more affordable for investors and employees, so it split five for one. Tesla’s stock price then jumped more than 10% to over $1,500 after the split was announced. Eventually, it got well above $2,000 before the dust settled. Its new price of $429.40 is down nearly 15% from its split-adjusted high of $502.49. Tesla was even able to use the hype and momentum of its split to raise $5 billion in a new stock offering, securing its future finances.
The inverse case of a stock split is the dreaded reverse split. That is when a company shrinks its share count and raises its share price by the similar amount. This rather proves that splits matter, even when all other factors remain the same. A reverse split generally is employed to avoid delisting from the New York Stock Exchange or Nasdaq. Reverse splits are often followed by a wave of short sellers betting this was a chance to sell more stock at a higher price.
24/7 Wall St. would never suggest that every single company with a high stock price needs to announce a split. That said, and after seeing how the hype did work, some stocks look and feel like they could use a split to further boost their shareholders’ attitudes. A stock split might even keep the excitement going after earnings.
Some companies may want to appeal to their broad base of customers with a share price adjustment based on the cost of their goods or services. Some companies may even view their own customers as perhaps the most ideal shareholders.
Many investors could argue that 50 or even 100 more companies should consider stock splits. This review focuses on the companies that are more widely traded and are also 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. Some of these are not the so-called FAANG stocks and other high fliers. These all have considerably higher share prices. Key performance metrics have been included for each, along with some additional color.
Amazon Above $3,000
Amazon.com Inc. (NASDAQ: AMZN) was last seen trading at $3,200, and its 52-week range is $1,626.03 to $3,552.25. It has a $1.6 trillion market cap, and its stock has traded with a hefty price for some time, breaking above $1,000 in mid-2017 and then hitting $2,000 for the first time in mid-2018. In some ways, Jeff Bezos may have pioneered the trend of not wanting to make stock splits as fashionable as they used to be. Amazon pays no dividend. 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 Still Above $1,500
Alphabet Inc. (NASDAQ: GOOGL) had recently been trading above $1,600, and its 52-week range is $1,008.87 to $1,726.10. It now has a $1.05 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 Alphabet is which, and many still wonder why the company even bothered changing the Google name. Alphabet pays no dividend and likely will not for the foreseeable future. One issue that might make for a split, even if they don’t want to, is that it could face a government breakup.
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