- Amazon (AMZN) is undergoing a stock split.
- Amazon shares that went for a little under $2,450 became 20 shares.
- After the split, Amazon will still be worth approximately $1.3 trillion.
Amazon stock has been prohibitively high for many typical investors. There are many things a person can spend $2,500 on instead of one small piece of “Prime” stock market real estate. A pleasant vacation? What about that home entertainment system? Do you have season tickets for your favorite sports team?
That is all about to change.
Amazon (AMZN) is undergoing a stock split, which increases the number of shares outstanding while also lowering the stock price, making it more accessible to the typical investor.
The split, which takes effect on Monday, will be a 20-for-1 transaction, which means that if you had one share of Amazon before the split, you’d end up with 20 shares after the split, each costing around one-twentieth of the prior price. As a result, the value of your investment remains the same, and one Amazon share that went for little under $2,450 became 20 shares that cost just more than $120 each.
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What is Amazon doing now? Companies with skyrocketing stock prices frequently announce splits to make shares appear more accessible to regular investors. Alphabet (GOOGL), which owns Google and YouTube and has a market worth of roughly $1.5 trillion, has also approved a 20-1 split that will take place in July.
Shopify (SHOP) is planning a 10-for-1 stock split later this month, while Tesla (TSLA) and meme stock favorite GameStop (GME) have also proposed splitting their equities.
But here’s the thing: While a stock split may make it appear that a share is now more affordable, valuation measurements such as price-to-earnings or price-to-sales ratios may not reflect this.
After the split, Amazon will still be worth approximately $1.3 trillion. The stock will still be trading at more than 150 times this year’s earnings prediction and almost 2.5 times its estimated 2022 revenues – both of which are much higher than the broader stock market and other retail industry giants such as Walmart (WMT) and Target (TGT) (TGT).
“Retail investor trading has increased dramatically over the past year and a half and has become very important again. It’s not just big institutions and hedge funds,” Mullaney said. “But it’s impossible for an average investor to buy 100 shares of some of these stocks at these prices.”
Professional investors have also taken note. Amazon’s stock has risen over 6% in the last week, suggesting that some investors may be trying to buy before the split takes place. (Amazon is still down by more than 25% this year.)
As a result, the impending splits for Amazon and Alphabet may open the way for those digital titans to join Apple and Microsoft in the Dow, the only two businesses in the US with a bigger market value than Amazon and Alphabet.
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