Connect with us

Hi, what are you looking for?

Stock

Stock splits are back in fashion. Here’s why, and which companies could be next.

Stock splits, long out of favor, are making a comeback.

It started with Walmart, which announced a 3-for-1 stock split on Jan. 30, with the additional shares being distributed on Feb. 23.

And from there, it picked up steam. On Thursday, Williams-Sonoma announced a 2-for-1 split, and on Wednesday, Broadcom announced a 10-for-1 split.

Stock splits are far less common now than 20 or 30 years ago. During the tech and internet bubble of the late 1990s, stock splits were common. David Kostin, chief U.S. equity strategist at Goldman Sachs, noted that roughly 15% of Russell 1000 firms split their stock each year in the late 1990s, but that proved to be an anomaly.

By the mid-2000s, roughly 5% of the Russell 1000 members split their stock each year, and after the great financial crisis from 2008-2009, stock splits practically ceased.

Importantly, splits did not increase after the market began recovering in 2010.

The likely reason is the institutional base for stock ownership has come to dominate the market. Institutional investors invest by dollar value, not by shares. They would typically buy, for example, $10 million in stock and wouldn’t care what the price is.

But recently, there are signs of a subtle shift. Some of it may be because the price of some stocks reached absurd levels. Chipotle, for example, has never split its stock and is trading over $3,200 and will soon split 50-for-1. Nvidia was over $1,200 by the time it split 10-for-1.

More importantly, some companies appear to be more interested in appealing to retail investors.

Nvidia noted that the purpose of the split was to “make stock ownership more accessible to employees and investors.” Chipotle said the same thing.

Walmart also cited these factors in its statement announcing the split: “The stock split is part of Walmart’s ongoing review of optimal trading and spread levels and its desire for its associates to feel that purchasing shares is easily within reach.

In theory, no. The value of the company remains the same.

However, many academic studies have noted various changes in trading patterns for stocks that split, though these changes are not uniform. One academic study published in the Journal of Risk and Financial Management in 2023 found several positive benefits:

1) Trading volumes go up

2) Liquidity, or the ability to trade a lot of shares without moving the price, improves

3) Stock splits increase the shareholder base for the company

These changes may have subtle impacts on the stock price.

If companies with a retail focus are suddenly more sensitive to their prices, there are some obvious candidates. The “over $1,000” club in the S&P 500 is small and getting smaller: Chipotle ($3,230), Broadcom ($1,679) and Lam Research ($1,032) are all splitting their stocks.

The holdouts include Booking Holdings ($3,852), Autozone ($2,809), and Deckers Outdoors ($1,026).

Other high-priced stocks with a retail focus include Costco ($843) and Super Micro Computer ($872), which recently joined the S&P 500.

However, if corporate America smells that there is a trend and can attract attention by splitting stocks, retail-facing companies with much lower price profiles may also become candidates.

That might include Spotify ($305), Ulta Beauty ($397) or even ServiceNow ($715), which has never split its stock.

This post appeared first on NBC NEWS

Enter Your Information Below To Receive Free Trading Ideas, Latest News And Articles.






    Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

    You May Also Like

    Latest News

    Kim Jong Un attended a “paramilitary parade” with his daughter to mark the 75th anniversary of North Korea’s founding on Saturday, the country’s state...

    Stock

    Target said Tuesday that it will close nine stores in major cities across the country, citing violence, theft and organized retail crime. The company will...

    Economy

    A U.S. District Court judge Thursday blocked implementation of a new Idaho law that would prevent transgender students from using restrooms, locker rooms and...

    Stock

    The Consumer Price Index hit 3.2% in July, compared with 3% in June, the Bureau of Labor Statistics reported Thursday. Once again, food prices...

    Disclaimer: aimyourdeals.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.


    Copyright © 2023 aimyourdeals.com