Tesla, Amazon and Alphabet stock splits: which 3 companies could split next?
There was no shortage of news events that captivated Wall Street and investors in the first three months of 2022. The ongoing COVID-19 pandemic, Russia’s invasion of Ukraine, and a full 180 on monetary policy from the Federal Reserve are just some of the catalysts and events responsible for the stun in stocks.
But amid this mountain of data, a trend emerged that gained a lot of notoriety in the summer of 2020: the stock split mania.
Brand companies benefit from stock split euphoria
In the past two months, three well-known companies have announced their intention to conduct a forward stock split, with the approval of their shareholders. A stock split allows publicly traded companies to change the price of their shares and the number of shares outstanding without having any effect on their market value or the performance of their underlying businesses.
It started with Alphabet ( GOOGLE 0.78% )( GOOG 0.75% ), the parent company of internet search engine Google and streaming platform YouTube. On Feb. 1, Alphabet announced that its board had approved a 20-to-1 stock split that, if approved by shareholders, would take effect in mid-July. Each Alphabet share held would increase by a factor of 20, while the company’s stock price would fall to 1/20th of its current level (about $142.50 for a Class A share, GOOGL).
Then the e-commerce giant Amazon ( AMZN 0.34% ), which has announced plans to also conduct a 20-to-1 stock split. If approved by shareholders, Amazon’s split would take effect in early June and reduce its stock price to around $169. For retail investors who don’t have access to fractional stock purchases through their online brokerage, this stock split could allow a number of them to buy Amazon (and Alphabet ).
Less than a week ago, he became a manufacturer of electric vehicles You’re hereit’s (TSLA 0.65% ) turn. Tesla and Apple kicked off stock split euphoria in the summer of 2020, and the former has returned to potentially capitalize on investor enthusiasm surrounding another split. Tesla did not announce what type of split it would seek eventually, but noted that shareholders would vote on whether to approve it. This will likely happen several months later at the company’s annual meeting of shareholders.
Which companies are next to adopt a stock split?
With widely held brand companies looking to cash in on the euphoria of stock splits, the question arises: what are the next companies?
The next three would seem to tick all the right boxes.
The first high-flying stock that would seem a logical candidate to announce a stock split is a semiconductor solutions company Broadcom ( AVGO -0.43% ). Broadcom was acquired by Avago Technologies in early 2016, with the combined company retaining the Broadcom name. Although Avago has never split its shares, Broadcom has done so three times (1999, 2000 and 2006).
The most obvious reason for Broadcom’s split is its stock price, which has grown 20 times over the past nine years. As of March 29, a single Broadcom share would cost investors more than $641. Even though a number of online brokerages now allow investing in fractional shares, saving up to $641 and switching to buy a single Broadcom share might be difficult, if not impossible, for some retail investors. A forward stock split would make the company’s stock much more retail-friendly.
It is also highly likely that Broadcom’s share price will climb even higher thanks to its strong operational performance. This is a company that generates most of its revenue from wireless chips used in next-generation smartphones. 5G wireless infrastructure upgrades (and the subsequent rollout of 5G smartphones), coupled with global supply chain challenges, have led the company to book production through 2022 and into 2023, according to CEO Hock Tan. At the end of 2021, the company’s backlog stood at $14.9 billion.
A stock split announcement would also make a lot of sense for the auto parts company Auto area (AZO -3.43% ). AutoZone last split its shares 28 years ago, with its shares rising from around $29 to $2,078 during that 28-year period.
If you thought Broadcom’s stock price at $641 was keeping some investors from holding its shares, imagine what a stock price near $2,100 can do! A substantial split in AutoZone’s futures shares would make its shares much more affordable to retail investors who don’t have access to buying fractional shares. It would also almost certainly increase the company’s daily trading volume, which could put it on the radar of more investors.
As I’ve said before, AutoZone’s reluctance to split its stock over the past 28 years potentially stems from its aggressive stock buyback program. Since fiscal 1998, AutoZone has repurchased $28.2 billion of its own stock and authorized $31.2 billion in buybacks. During this period, the number of outstanding shares of the company fell from around 150 million shares to less than 20 million. Completing a stock split would increase the number of shares outstanding and theoretically obscure progress made on the stock buyback front since 1998.
However, with less than 20 million shares outstanding, AutoZone will soon be limited in the number of shares it can buy back. A stock split may soon be necessary if the company wants to continue building shareholder value through buyouts.
The third and final stock that may be next to announce a split is Warehouse Club. Wholesale Costco ( COST -0.05% ). Costco has split its stock four times, but the last time was in January 2000.
The common theme with this list is that these companies have share prices that are prohibitive for investors who cannot buy fractional shares. In the case of Costco, its shares soared from around $50, when it was last split 22 years ago, to $570, as of March 29. affordable on a nominal basis.
Like Broadcom, Costco is firing on all cylinders and has a good chance of seeing its already high stock price rise even more over time. In the first 24 weeks of fiscal 2022, Costco reported comparable store sales growth of 14.7%. With domestic inflation soaring, consumers are turning to Costco for bargains more than ever. Since Costco buys in bulk and results in a lower cost per unit, it is often able to pass these savings on to its members.
Costco’s membership model also has its advantages. Annual membership fees further buffer its margins and allow it to undercut other retailers’ prices. This makes it more likely that members view Costco as their one-stop shop for groceries, and even some discretionary items.
Now seems as good a time as ever for Costco to join the recent parade of stock split announcements.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.