3 Stock Splits That Have Investors Excited

This is becoming the year for stock splits.

A stock split is pretty much what it sounds like – a company cuts the price of its shares by a certain ratio, then reissues additional shares to shareholders in return. So, if a company is trading for $500 per share and announces a 5-for-1 stock split, the stock price is cut to $100 and shareholders get an additional four shares for each share they owned before the split.

Stock splits are a sign that a company is doing well and it wants to put more shares on the market. It is also a strategy to make shares more accessible to retail investors who may be hesitant (or unable) to drop several hundred dollars on a single share of stock.

On the flip side, sometimes companies will announce a reverse stock split. Reverse splits can be used to yank a faltering stock price higher, particularly if it’s in danger of being under $1 and being delisted by a major exchange. Reverse stock splits are commonly signs of serious trouble in an equity.

Just in the first quarter, 83 companies announced stock splits – some of them traditional and some of them reverse splits. For the purposes of this analysis, however, we’ll look at three popular companies that are on the rise after announcing they are splitting their shares.

Stock Splits: GameStop (GME)

GameStop, the video game retailer turned meme stock champion, is seeing big gains today after the company announced plans for a stock split. The stock jumped more than 10% after GME said it planned to have the company’s first stock split in 15 years.

In a Security and Exchange Commission filing, GameStop said it planned to ask permission from shareholders to increase its share count from 300 million to 1 billion. It would carry out the stock split in the form of a dividend, the company said, and “provide flexibility for future corporate needs.”

The company didn’t say what ratio it would use for the split.

GameStop has been one of the most popular stocks on Reddit and the r/WallStreetBets subreddit for more than a year, after retail traders there executed a short squeeze in early 2021 with marginal success. They pushed the stock price of GME from less than $20 to a high of $483.

Since then, GameStop has been a roller-coaster ride that continued today. The stock jumped 17% on Thursday in after-hours trading, but gave back those gains by this afternoon.

Stock Splits: Amazon (AMZN)

With a stock price of more than $3,200, it’s no surprise that Amazon is finally jumping into the stock split game. Amazon announced on March 9 that its board of directors approved a 20-for-1 split.

The split will be the first for AMZN stock since 1999.

“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,” the company said in a statement.

Amazon stock rose by 6% on the news and those gains have kept coming AMZN stock is up 19% since the announcement nearly a month ago.

Of all the FAANG companies, Amazon has been a disappointment over the last year, but earnings in the fourth quarter showed some promise. Revenue came in just below expectations at $137.4 billion, but earnings popped by $5.80 per share. Analysts had just been expecting earnings of $3.57 per share.

For the first quarter of 2022, Amazon projected revenue between $112 billion and $117 billion, which is below analysts’ expectations of $120 billion. 

Stock Splits: Tesla (TSLA)

Elon Musk’s electric vehicle juggernaut make new headlines this week when it announced on Monday that it’s looking to split TSLA stock for the second time in two years.

Like GameStop, Tesla’s split would come in the form of a dividend that would pay shares rather than cash to current investors. The company hasn’t said what ratio it would use, but two years ago the company successfully executed a 5-for-1 stock split.

In addition to the stock split, Tesla bulls are excited about company’s Berlin Gigafactory that, after it wins final approval, will further open European markets to Tesla products. Analysts project that the Gigafactory alone will help push TSLA stock to $1,400 from its current price.

TSLA stock is up  7% this week following the stock split announcement. That pushes Tesla back into the black for 2022 as the stock is up 2%, far outperforming the Nasdaq composite and its 9% loss.

As of this writing, Patrick Sanders was long TSLA stock.