Stock splits — when a company increases or decreases its share count without changing its overall value — clearly do nothing to change what a company does or its intrinsic value for investors. But splits can definitely have a short-term effect on stock prices. Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA) proved that this week when their share prices shot higher for no apparent reason other than their stocks splitting.
Amazon (NASDAQ: AMZN), NVIDIA (NASDAQ: NVDA), Netflix (NASDAQ: NFLX), and Chipotle (NYSE: CMG) are some of the most expensive stocks on the market. Even if the upside is short-lived, each company’s stock price could get a boost from simply splitting their shares. Let’s take a closer look at why these four companies should be the next to split their stocks.
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Amazon has split its stock before, but it hasn’t done so since way back in 1999. Since then, the online retailer and cloud computing leader has become one of the biggest technology companies in the world (and one of the most valuable). And with shares trading at $3,450.96 at Monday’s close, it may be time to consider a split.
What could hold back a split in Amazon’s stock is founder Jeff Bezos, who has a long-term view of the company’s operations and may think the same about the stock. Since splits don’t add any value to operations and are used for short-term boosts, Bezos may not care. But a lower share price could also bring in smaller investors who want to own just a share or two of the stock, which may be attractive for a company focused on customers.
I wouldn’t bet on an Amazon stock split, but if it did, the stock could be pushed even higher by this enthusiastic market, just like Apple and Tesla stocks.
Shares of NVIDIA have moved higher so fast that management may not have considered a split until now. But at $534.98 at Monday’s close, shares could easily be split 4-for-1 or at an even higher ratio to make them more palatable to small investors.
The appeal here is that NVIDIA’s customers are gamers and technology companies, some of the same people who may be using stock-trading service Robinhood to start investing. If a lower share price is what they need to consider buying shares, a split makes sense.
Now that NVIDIA is solidly profitable and one of the real giants in technology, it may want to have a wider appeal to investors, and this is one way to get that.
There’s no real reason Netflix needs to be one of the most expensive shares trading on the market these days, but that’s where we are at $529.56 as of Monday’s close. But Netflix might be waiting for a high price to justify more than a 2-for-1 split.
The last time Netflix shares split was in 2015, when the company performed a 7-for-1 stock split. If it did that again the newly created shares would be priced at $75.65 each, a sweet spot above $20 but below $100 that companies like to trade at.
There are new investors looking to buy stocks right now, and a high price may be scaring them away — so a stock split may be around the corner.
Chipotle is another stock that has moved higher so fast that management may not have considered a split until now. But at $1,310.28 per share as of Monday’s close, it’s one of the most expensive on the market, and that makes it a little less appetizing for investors looking for great growth stocks on the cheap.
Even a 10-for-1 stock split shouldn’t be out of the question for shares that are this expensive. Chipotle would still trade for over $130 per share.
If investors want to begin their purchase of a company’s stock using lower-priced shares (even if that does nothing to change the long-term value of a company), Chipotle is the kind of company that could benefit in the short term.
Keep this in mind
Remember that splitting shares doesn’t do anything to improve a company’s operating performance and shouldn’t do anything to change its intrinsic value. But recent events have shown that stock splits can be attractive to investors, whether that’s because they like trading lower-priced stocks or because lower prices bring in more investors. Whatever the reason, these companies might want to consider taking advantage of the trend.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Travis Hoium owns shares of Apple and Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Amazon, Apple, Chipotle Mexican Grill, Netflix, NVIDIA, and Tesla and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.
These 4 Companies Should Split Their Stocks was originally published by The Motley Fool