AMAZON EXCEPTION: Amazon (AMZN) announced a 1:20 stock split, its first since 1999, and investors responded by bidding its stock up 5%. They follow other mega caps like Alphabet (GOOGL) last month, and both Apple (AAPL) and Tesla (TSLA) in 2020. But these are the rare exceptions. Despite the soaring average price of S&P 500 stocks in the past decade the number of them doing stock splits has plunged (see chart). We think this reflects an over-focus on institutional investors and further overlooks the rising importance of individual retail investors.
WHY BOTHER: A lower stock price does not change a company’s fundamentals. But it may open it to a broader investor base, improve tradability, signal management’s positive outlook, and better allocate stock compensation. Data clearly shows a pickup in retail ownership after stock splits, and a bump in share price performance. A lower price could also open up to Dow index inclusion. Fractional share ownership has become more available but is still far from ubiquitous.
WHY NOT MORE: But only a fraction of companies are doing splits. Some see prestige in a higher stock price. Others focus on ‘serious investors’, whether institutions or ETF behemoths. This overlooks the growing need. 1) Retail investors have become a greater proportion of trading activity, and 2) share prices have surged to higher average levels. 25% of individual investors are new to markets. US household equity ownership is at records. Retail investors are overlooked in stock splits but also fundraisings, investor events, management access, and research provision. Tech mega caps are taking a stock split lead, but many others should follow. There is much to do.
All data, figures & charts are valid as of 10/03/2022