As indices lingered at record highs early this year, stock splits were all the rage, with businesses ranging from Amazon.com to Alphabet announcing them to make their share prices more appealing to individual investors. After a few months, the market has resolved the issue.
Amazon, whose 20-for-1 split takes effect on Monday, is among companies whose stocks have tumbled since the moves were announced amid a broad market sell-off that has been especially painful for the technology sector.
Shares of the e-commerce company have fallen 12 per cent since reporting the plan in March. Alphabet, which announced a similar proposal in February, is down 17 per cent since then.
The sell-off means the stocks will be trading at a discount to the sticker price originally envisioned by executives.
That will make it easier for the behemoths to gain entry to the Dow Jones Industrial Average, whose weighting is based on share price. However, it could have the effect of making them look less princely than their market values and history of big gains would imply.
“Stock splits are usually a sign of optimism,” said Mark Lehmann, chief executive of JMP Group.
“Very few companies split their stock in anticipation of things going poorly. It’s an example of what’s reflected in the entire market.”
Splits have no fundamental effect on share value — they’re the stock market equivalent of exchanging a $20 bill for two $10s. But in the buoyant market of early 2022, they were met with bidding wars by giddy traders.
For companies such as Shopify that have fared even worse than Amazon and Alphabet amid an exodus from stocks with the highest valuations, the splits could make them look downright pedestrian.
If the 10-for-1 exchange plan by the Canadian e-commerce company was carried out today, it would result in a US share price of about $35. This followed a 79 per cent crash from a November high when the stock closed at a record $1,690.60.
The median stock price in the S&P 500 Index, by contrast, is around $113, according to data compiled by Bloomberg. Shopify’s split is set to take effect on June 29.
The sour market sentiment could cause companies such as Tesla to rethink their plans. The electric car maker said in late March it would ask investors this year to approve the creation of additional shares for the purposes of another split. The stock was trading above $1,000 at the time.
Since then, the shares have lost nearly a third of their value, closing Friday at $703.55, amid manufacturing problems in China and concerns about slowing growth.
