Currently, AMZN stock trades at just under $125 per share. That’s a much lower price from where it closed before the split. In fact, this is Amazon’s lowest level in 25 years, although experts remain unworried. Each time shares of Amazon have split, they have come back stronger. Typically, stock splits are enacted to make shares of a given company more accessible for investors.
InvestorPlace contributor Chris Tyler says buying Amazon stock is “anything but a split decision” now. But Tyler isn’t the only voice calling this a buying opportunity. One expert in particular is quite bullish on shares.
AMZN Stock After the Split
David Wagner is a portfolio manager at investment advisor firm Aptus Capital Advisors. Wagner is also an AMZN shareholder in Aptus exchange-traded funds (ETFs). Following the split, Wagner shared his insights in an email to InvestorPlace:
“For arguably the first time in 20 years, Amazon has significant excess capacity, and we expect Retail margins to improve from recent lows as utilization scales. An uncertain consumer outlook adds risk, but with [e-commerce] at 15-20% penetration of Retail, y/y [e-commerce] growth trends likely bottoming, and the company seemingly cost focused from here, we see Amazon as well positioned for resumption of [e-commerce] penetration growth.”
That isn’t the only positive mark Wagner sees for AMZN stock, either. “[T]his stock tends to outperform well when its harvesting instead of investing,” the analyst adds. “And right now, it’s finally harvesting.”
Wagner does note that stock splits aren’t a guaranteed magic pill to maximize returns for investors. However, he says that “splits lately have been a source of relative alpha.” The analyst and his firm continue to regard AMZN stock with favor, although Aptus would be willing to “pare back” if the share price grew to exceed $150.
The Road Ahead for Amazon
Stock splits don’t instantly create value for a company. However, they can certainly prove beneficial to investors.
Back in 2020, Tesla (NASDAQ:TSLA) announced a stock split, sending shares up 80% between the announcement and actual split date. That type of success has compelled Amazon and other high-growth tech companies to split shares as well.
AMZN stock may indeed reach $150 down the line. For now, though, shares are at a great price for small-scale investors looking to buy into the tech behemoth.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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And just as with Google's move, Amazon's stock split could open the door for its inclusion in the elite Dow Jones Industrial Average one day.
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The Details on the Amazon Stock Split and Buybacks
Amazon, which originally announced the stock split March 9, will give each shareholder 19 additional shares for each share held (pending shareholder approval, of course) on June 3. The company said AMZN stock will begin trading on a post-split basis on June 6.
Based on current levels, shares would go for just under $107 apiece following the Amazon stock split. That should make AMZN shares more attractive to retail investors currently put off by the four-figure sticker price of more than $2,100.
"This split would give our employees more flexibility in how they manage their equity in Amazon and make the share price more accessible for people looking to invest in the company," an Amazon spokesperson said.
Despite what the textbooks say, the market loves stock splits. And that continues to be true even in an age when brokers are happy to sell clients fractional shares for free.
After all, splits might give traders and investors more flexibility, but they have absolutely zero impact on a company's fundamentals, prospects or its shares' valuation. That's because a split is essentially the same thing as making change. In this case, shareholders will effectively be swapping a $20 bill in return for 20 $1 bills.
However, a $10 billion share repurchase program, also announced back in March, is another matter entirely. It replaces Amazon's previous $5 billion stock repurchase authorized in 2016. The company bought back $2.12 billion of its shares under that plan.
By reducing its share count, Amazon's remaining shares will have greater perceived value by dint of both their increased scarcity and greater claims on future cash flows.
Amazon to the Dow?
But perhaps the most interesting perceived benefit of the split is that Amazon could be tapped for the 30-stock Dow Jones Industrial Average one day. That's because the blue-chip barometer isn't built like the other two major indexes.
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The S&P 500 and Nasdaq Composite determine their weights by market capitalization (stock price multiplied by number of shares outstanding.) But the Dow – created way back in 1896 – is weighted by the company’s stock price.
That price-weighted construction effectively shuts out companies with lofty share prices, such as AMZN. Indeed, at $2,100 a share, Amazon stock would skew the average into meaninglessness.
UnitedHealth Group (UNH (opens in new tab)), at roughly $500 a share, holds the greatest weight in the average today. Adding AMZN at $2,100 would turn the Dow into the “Amazon & Friends Average.”
That said, while the Amazon stock split might make Amazon a more realistic addition to the Dow, don’t consider its inclusion automatic. The Dow’s editors at S&P Dow Jones Indices are the ultimate arbiters of that decision – and it’s not a simple one to make.
Amazon is a member of the market's consumer discretionary sector. Home Depot (HD (opens in new tab)), McDonald's (MCD (opens in new tab)) and Nike (NKE (opens in new tab)) are already representatives of that sector in the blue-chip bastion.
Does one of those stocks get the boot? Amazon’s post-split price would be well below that of HD or MCD. Kicking one of those names out in favor of AMZN would lower the consumer discretionary sector's weight in the Dow. Is that a problem?
Furthermore, the editors construct the Dow to reflect the broader economy. The world's largest fast-food chain and nation's largest home improvement retailer represent aspects of the economy that would be diminished with their exclusion. Besides, brick-and-mortar retailers still matter, even amid the rise of e-commerce. Nike, meanwhile, is a massive global vendor in the apparel and footwear industry.
No, the editors aren't bound by some rule that requires them to swap stocks within sectors. They could add AMZN at the expense of some other sector, for sure. But sector weightings and overall construction of the average … these can be tricky things, and they're issues the editors would have to consider.
All that said, investors should also know that being tapped for Dow inclusion is largely symbolic. Some $13.5 trillion was indexed or benchmarked to the widely used S&P 500 as of earlier this year. That means passive funds tracking the S&P 500 must own all of its components, weighted by market value. Period. Many other sector and “smart beta” funds that track all or part of the index in some way also are forced to own some or all of the S&P 500’s components.
However, only $36.6 billion was indexed or benchmarked to the Dow. Mega-cap stock AMZN, by itself, is worth roughly 40 times all the money tracking and chasing the industrial average.
True, the blue-chip barometer can't be beat for brand familiarity. It might be fitting if Amazon joined the Dow. But that’s about it.
What we do know about the Amazon stock split is that it should bring in loads of retail investors. That, in turn, could light a small fire under shares, at least for a while. Just be aware that volume in Amazon stock would likely also increase – and so volatility very much could too.