Its odd to see a retailer that prides itself on low prices fetching a four-figure stock price, but here we are. Amazon.coms (NASDAQ:AMZN) success and its reluctance to split its shares is creating an interesting dilemma for the iconic growth stock.
There are only three U.S.-listed stocks with larger price points than Amazon, and none of them are posting the kind of double-digit top-line growth that the worlds largest online retailer routinely delivers. With Jeff Bezos moving on in a few months wouldnt a stock split be the perfect farewell gift? You have to go back 22 years to find the last time Amazon split its shares. Its time for Amazon to party like its 1999.
Image source: Getty Images.
A splitting headache
Amazon is a rock star. Its always been gaining market share at the expense of brick-and-mortar chains, but last year the pandemic found it playing at an entirely different level. Net sales rose 38% in 2020, its biggest burst in nine years. When Amazon reports fresh financials later this week it should be another blowout.
Wall Street pros see Amazons top line surging 38% in the first quarter that it will unroll on Thursday afternoon. Theres bubbling speculation that another better-than-expected report can trigger its first stock split of the millennium.
In theory, it shouldnt matter. A stock split is a zero-sum game. Amazon with 500 million shares at $3,400 -- where its roughly now -- or Amazon at 5 billion shares at $340 is still a $1.7 trillion company. With investors able to buy fractional shares, its not as if even someone with just a little money to put to work in the stock market cant become an Amazon shareholder.
However, its also undeniable that theres a certain bullish sentiment that accompanies split announcements. We saw a pair of markets priciest stocks move even higher after splits last summer.
Another reason to consider a lower stock price with a commensurate increase in its share count is that its the only way that Amazon ever gets added to the Dow. Theres no denying that Amazon is worthy of induction into the inner circle of the Dow 30. However, as an archaic price-weighted index, the high $3,400 price tag makes joining impossible. The Dow is determined by multiplying every stock price by a common divisor, and the sum of the prices of the 30 stocks in the Dow Jones Industrial Average was $5,164 as of Mondays close. Amazon would be 40% of the Dow -- and thats not happening.
Amazon obviously doesnt need the Dow badge. Its doing just fine on its own. However, with stock splits fashionable again since last summer, its time for some of heavy-priced tech stocks to kick off a new summer of splits. The temperatures are starting to heat up, and Thursday is just around the corner. Its your turn, Amazon.
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.John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fools board of directors. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends the following options: long January 2022 $1920.0 calls on Amazon and short January 2022 $1940.0 calls on Amazon. The Motley Fool has a disclosure policy.>
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