Today is the first trading day following Amazon’s (AMZN) 20-for-1 stock split that the company announced on March 9. Shares are rising nearly 5% in early trading Monday to $128 per share, after the share price was revalued to $120 per share following the stock split. Shares were up almost 8% for the past five days heading into the split, despite the fact that the stock split doesn’t create any extra value for shareholders.
Google’s Alphabet (GOOGL) also announced a 20-for-1 stock split that is set to take effect in July, and Tesla (TSLA) announced it intends to split its stock, although it hasn’t disclosed the ratio or timing of its split.
One potential advantage of the splits is that they could make the shares more likely to be added to the Dow Jones Industrial Average. Adding high price stocks to the Dow is always a problem because the index is weighted according to price, so the same percentage change in a high-price stock moves the index more than for one with a lower price. A four-digit stock would instantly give it the most influence in the index. The stock split will also make Amazon’s stock more affordable to retail investors.
“Amazon’s stock split comes at a critical time for investors. Shares of AMZN are down 23% year-to-date, and down 20% in the past year. While the split doesn’t change the value of the shares, a lower price point may attract more price-conscious buyers who have been waiting to own the stock,” stated Caleb Silver, Editor-in-Chief on Investopedia.