The chatter calling for Amazon.com (NASDAQ:AMZN) to execute a stock split is diminishing, but that’s surprising. The stock continues to rise, making the arguments for a lower share price via a split all the more tantalizing.
There are also a couple of good reasons why Amazon should announce a stock split as soon as later this week. You might think these bookkeeping moves are silly zero-sum games, and that’s fair. However, a lot of other market watchers see an Amazon split as the key to attracting even more retail investors while also making life easier for options traders. Let’s see why Amazon could be the next major stock to declare a stock split.
Amazon is rocking
It’s good to be Amazon. The e-tail king was doing just fine before the pandemic shifted e-commerce into an even higher gear. The 38% increase in net sales that Amazon posted last year was its heartiest top-line gain in nine years.
Things aren’t slowing down in 2021. Revenue soared 44% during the first three months of this year.
Investors are paying attention. Amazon held up better than most growth stocks during the correction earlier this year. It enters this trading week within 3% of the all-time high it hit two weeks ago.
There are only three U.S.-exchange-listed stocks trading at higher price points than the roughly $3,700 that Amazon is fetching as of Monday morning. Amazon’s market cap is more than double those of the three higher-priced stocks combined. It’s time for a stock split.
The clock is rolling
Amazon reports its second-quarter results after market close on Thursday. Stock splits are often announced during an earnings release, whether the report itself is positive or negative.
Adding to the likelihood of a stock split is that CEO Jeff Bezos officially stepped down as CEO earlier this month. If new CEO Andy Jassy wants to break the mold, there is no easier move than declaring the stock split that Bezos never cared to execute.
A stock split is a zero-sum game. A single share of Amazon at $3,700 would be the same thing as 50 shares at $74. However, it’s not easy to trade options on a $3,700 stock. We’re not just talking about throwing speculators a bone, as there are plenty of conservative risk-management tools available for long-term Amazon investors through the options market.
Stock splits may not seem to matter as much as they did just a few years ago. Investors can buy fractional shares through a growing number of brokers. Zero-commission trading makes it easier than ever to buy a couple of shares at a time. However, there is still a natural attraction to low stock prices.
A lower stock price would also make Amazon a no-brainer addition to the Dow Jones Industrial Average the next time the archaic but still relevant index shakes up its 30 members. In short, you don’t have to be a fan of stock splits to see how an increase in retail and possibly institutional ownership can make Amazon even more valuable.
Your legacy begins now, Jassy. A stock split makes more sense than you probably think.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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