Stock splits seem to be the trend in financial markets these days. Giants like Amazon (NASDAQ: AMZN), Tesla (NASDAQ: TSLA), and Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) have announced stock splits.
Retail investors seem to prefer them because they feel that they can buy shares of good companies without burning a hole in their pockets.
While stock splits are only meant to make the stocks much more accessible to retail investors, the corporate action does not increase the overall market value of the company. This is because market capitalizations are being calculated by multiplying the share price by its total number of shares and a stock split only increases the number of outstanding shares.
However, stock splits by Amazon, Tesla and Alphabet will increase the accessibility and liquidity of these shares, leading to an uptick in prices. Tesla split its stock in Q4 of 2020, after which it gained significant momentum to end the year at all-time highs.
So, let us understand the announcements made by these giants in detail:
1. Amazon
The Seatle-based company has announced last month that it is going to split its shares by a factor of 20-to-1 following which there will be actually twenty times more amazon shares in existence than it is today. Astonishingly the company is actually undergoing this strategy for the fourth time now, though this is the first time in this century. Post this decision the company has gained close to 8% value in the past month.
The split is expected to take place on or around June 3, 2022, and for existing shareholders of record by May 27, 2022, as per an SEC filing and the company will start trading at its new split-adjusted price from Monday, June 6, 2022.
Retail investors will get the most benefits from this move as post the application of this decision Amazon shares will be available at one-twentieth of their current per-share value. This means retail investors can buy one Amazon share for as little as $163, at current prices. An investment of $500 can get them at least three shares compared to a scenario when $1,000 couldn’t get them even one share.
2. Tesla
The electric vehicle manufacturer is announcing its stock split for the second time in a two years period. In August 2020 it had made a 5-for-1 forward split and witnessed share prices gain 60% in the following three-week period.
When TSLA split its stock in 2020, its share price was around $1,373 and it's currently trading near $1,085. Moreover, the company has already added more than $80 billion to its valuation post the stock split signal.
Company CEO Elon Musk knows Tesla is a favorite holding among retail investors even though more than 61% of outstanding shares are held by institutional investors and insiders combined. So, to keep retail investors happy the company might be encouraging its board to move towards another stock split.
3. Alphabet
In the month of February, the tech giant announced it will be going for a 20-for-1 stock split with which stockholders of record at the close of business on July 1, 2022, will be receiving additional 19 shares of stock for every share they own on or about June 3 and the shares will start trading at the split-adjusted basis from June 6.
Alphabet has already added close to 4% in the past one month following this decision as the retail investors are overjoyed that post its implementation, they will get to purchase shares of one of the biggest companies in the world just by paying $139.
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