Will Amazon’s Stock Split Kickstart the Stock?

Amazon’s (AMZN -3.21%) stock has had a challenging second quarter. Since April 1, the stock has dropped more than 30% and is presently 42 per cent below its all-time high. While its e-commerce company is feeling some pressure as consumer buying habits return to normal, is the situation terrible?

Furthermore, if Amazon’s shareholders approve the imminent stock split at the shareholder meeting on May 25, Amazon’s shares will be divided 20 for one. This split would reduce the current price from roughly $2,200 to around $110 per share. While essentially a cosmetic step, it may allow the inclusion of Amazon in the Dow Jones Industrial Index; moreover, it will provide access to stock ownership for those who do not have fractional shares.

Possible Hike in The Prices

The announcement of a company split can often skyrocket prices; however, the returns following the break are varied. According to Schaffer’s Research, the average six-month return for 240 stock splits after 2010 was 5.25 per cent, compared to the S&P 500’s 4.39 per cent. Their research did not go beyond that, but it is why stock split stocks could perform significantly better. Companies typically split their store due to the enormous stock price increase.

A single catalyst drives long-term growth: company performance. Outstanding companies have great stock returns, making them ideal candidates for stock splits and, as a result, more significant returns after the split.

A future Dow Jones index addition is another factor to consider. Because the Dow Jones is price-weighted, stocks with high prices might throw it off. United Health is currently the index’s most “expensive” stock, at $480, and Amazon’s $2,000-plus stock price would disturb the index’s equilibrium. The post-stock split would be roughly $110, around the bottom third.

According to these figures, Amazon’s stock is reasonably valued. Any corporate expansion should result in a more excellent stock price, but that could take some time with the current market outlook.

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