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• Stock split makes Amazon more attractive to small investors
• Multi-billion dollar share buyback program
• Business in expansion
Amazon will do a 1:20 stock split on June 6. The internet giant announced it in early March, following Google’s parent company Alphabet, which also announced a stock split for this year. At the end of March, Elon Musk also made public the announcement of a stock split in Tesla.
All three companies are not listed on the Dow Jones because the main US index is price-weighted. However, all three tech giants could lift the Dow with a cheaper share price.
Amazon stock splits and price explosions
On May 15, 1997, Amazon entered the NASDAQ trading floor. The value of the shares quadrupled almost instantly. Due to the huge success, just over a year later, on June 2, 1998, Amazon arranged a 1:2 stock split, after which the stock price more than doubled. The second stock split took place on January 5, 1999 in a ratio of 1:3. Shortly after, in February, the fall of more than 25 percent followed, followed by a relatively rapid recovery phase. The last split to date took place on September 1, 1999 at a 1:2 ratio and the price shot up again by 48 percent. After that, the stock was very volatile, giving back most of its gains before recovering. Along with the other tech stocks, Amazon stock crashed in 2000. After nearly 23 years, the fourth stock split is coming.
Of course, the current size of Amazon, with a market capitalization of nearly $1.7 trillion, makes it more difficult to post the impressive earnings it enjoyed in the late 1990s. Such jumps in stock price as in 1998/1999 therefore seem quite unlikely. But there are other factors that speak in favor of a good evolution of the action after the split.
What makes Amazon stock attractive right now?
The allegory of a pizza is often used to explain a stock split: a pizza doesn’t get bigger just because you cut it into more individual portions. This also applies to the valuation of a company. However, a cheaper share price is much more attractive to retail investors, so post-split investors are expected to take advantage of it.
Because Amazon shares are currently not attractive for small investors with a price of more than 3,000 US dollars: with an investment of less than 3,000 US dollars, a share in Amazon is simply not possible in many cases and also with an investment of less than 3,000 US dollars. of 5000 dollars. US dollars, for example -dollar, the cluster risk of investing more than 50 percent of the total amount in a single company is too high or too high for an investor.
Another factor in favor of the stock’s appreciation is the board’s authorization to repurchase up to $10 billion of shares, also announced by the company in early March. This is Amazon’s largest share buyback program to date. More recently, in 2016, authorization was given to buy back shares of the company for up to US$5 billion, of which only US$2.12 billion was implemented. There is also no timetable for this year’s share buyback program.
In this year’s letter to Berkshire Hathaway shareholders, legendary investor Warren Buffett isn’t the only one to describe stock buybacks as the simplest method of increasing one’s wealth. In 2022, German DAX companies also started multi-billion dollar share buyback programs with outstanding balances behind them.
Plot: Amazon balance sheets
The most powerful argument for forecasting the stock price, however, is undoubtedly the trading numbers: In the last fiscal year, Amazon was able to increase sales by more than 21 percent to $469.8 billion. Revenue growth of between three and eight percent is forecast for the first quarter of 2022 compared to the prior year. As expected, Amazon posted higher costs in 2021 but increased operating income by nearly 9 percent to $24.9 billion. Amazon’s last quarter 2021 profit surplus beat expectations but is due to its holding in electric carmaker Rivian, which is currently under pressure due to price hikes in early March.
The burgeoning cloud segment and Amazon Prime price increase in the US are welcomed by investors. While analysts had expected higher forecasts for 2022, Goldman Sachs and JPMorgan revised their share price target higher.
The all-time high for Amazon stock on 07/14/2021 is $3,773.08, the same month that Andy Jassy took over as CEO. A stock split could also open up a new prospect for Jassy, as investors would no longer measure her at this price, which is more than 20 percent higher.
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