It’s finally happened! The last giant standing has officially fallen!
And by the last giant, I of course mean Amazon (AMZN).
Among the many headlines released late last night, one had dominated the minds of small traders and big investors alike – Amazon (AMZN) is finally doing a 20-for-1 stock split.
In less important, but still notable news, the company also announced a concurrent $10B stock buyback.
Why is this such a big deal? And why does the market seem so bullish on the stock?
Why Big Stocks Split?
Companies usually split stocks for a simple reason: to make shares more affordable and, therefore, more liquid and appealing to smaller investors.
Case in point: Amazon is trading slightly shy of $3K right now – I bet it’s not easy for many smaller traders to shell out $3,000 of hard-earned money for a single share, no matter how much they love the company.
BUT, once the split goes into effect, AMZN will be priced around $150/sh – at that price point, virtually anyone can own some stock without feeling overburdened and overexposed.
And I didn’t even mention the liquidity aspect: with lower-priced assets volumes are generally higher while the spreads are lower – it’s easier and safer to get in and out of positions.
For these 2 reasons, a freshly split stock often gets an influx of new capital and moves up in price.
The performance of recent major splitters only confirms this thesis:
- Tesla (TSLA) – up ~100% post split
- Nvidia (NVDA) – up ~20% post split
- Apple (AAPL) – up ~30% post split
And mind you, the above figures fully reflect the current market’s downturn! The numbers were significantly higher just a few months back!
It just so happened that with GOOGL’s upcoming split, AMZN remained virtually the last “mega-stock” that hasn’t followed suit.
The company’s founder and ex-CEO Jeff Bezos was always vocally against one… but, new leadership = new rules!
AMZN’s share price will be divided by 20 as of May 25th, 2022.
So, what can we expect from the stock?
Here are some thoughts me and Jason have traded earlier today:
Jeff Bishop – I Expect We’ve Seen The Low for AMZN For Some Time
“I believe it’s a great move for the company! AMZN has been under pressure to do this for a while and the timing looks great now, given how pressured the stock is.
As a trader, it’s often difficult to get good executions on AMZN options because of high prices and big spreads. Splitting the shares by 20 is going to make trading the stock much more accessible for all traders and should increase the number of people actively trading it.
I think the stock buyback was huge too. That really sends a much-needed signal to the market that management stands by its stock.
I would expect that we have seen the low for AMZN for a long time now, barring a catastrophe in the market.”
Jason Bond – Split Brings Whole New Level of Demand for Stock
“Once Jeff Bezos stepped down, I knew this was a matter of time.
A page right from AAPL and TSLA playbooks that worked fantastic for those behemoths.
Fractional trading combined with the surge in retail trading now brings a whole new level of demand for the stock, that just wasn’t there when it traded in the thousands.”
What’s Next for Shares?
Yesterday’s announcement comes in very handy for a stock that’s been underperforming for close to 2 years now.
Could this be exactly what AMZN needed to “turn the page” and get bullish again?
We don’t know yet, but the initial reaction has been great.
I’m personally expecting some upticks into the split date (May 25th) and believe $3000 (or $150 post-split) will be the key level, technically and psychologically.
If AMZN manages to climb over and hold there, I think it would signal the market is sharing mine and Jason’s optimism – I may shop for bullish entries with the stop below $3000 and the target in $3400+ area.
