Apple and Tesla are splitting their stocks to push the per-share price lower. Could Amazon, Chipotle or Netflix be next? Amazon and Chipotle both have quadruple digit stock prices while Netflix is trading near $500 a share.
The Apple and Tesla splits will soon make those stocks more affordable for average investors to purchase.
By completing a 4-for-1 split at the end of this month, Apple (AAPL), which currently costs about $460 a share, will trade around $115. Tesla (TSLA), now hovering around $1,875, will see its stock price fall to about $375 following its 5 for 1 split.
A stock split simply increases the number of shares outstanding, so neither company will actually lose value. An investor who held one Tesla share will soon own five, but the total value of their holdings stays the same.
Think of it like a pie. If you cut eight equally sized slices into sixteen and eat two, that’s the same has having one bigger pre-cut piece.
Both Apple and Tesla stocks have surged since announcing the splits. That has investing experts wondering whether similarly high priced stocks — such as Amazon or Netflix — may soon split as well.
“If more super expensive companies follow with splits, the stocks could rocket even higher,” said Daniel Betancourt, a moderator and writer with investing site OptionsSwing. “Logically, a stock split does nothing to change a company’s value. But there’s nothing logical about this market.”
The case for more stock splits
Betancourt added that companies may want to lower their price to entice younger investors using apps like Robinhood. These mostly millennial and Gen Z traders may not be able to afford many shares of a company with a high stock price.
Amazon (AMZN), for example, now trades for nearly $3,300 a share. The e-commerce and cloud giant hasn’t split its stock price in 1999. One Netflix (NFLX) share costs almost $500. It last split in 2015.
Google owner Alphabet (GOOG)L&source=story_quote_link” > (GOOG (GOOG)L) also has a high share price, trading at more than $1,500. The company announced a controversial stock split in 2012. Instead of simply cutting its price, Alphabet (GOOG)L&source=story_quote_link” > (GOOG (GOOG)L) issued a new C class of shares with no voting rights. They trade with the ticker of GOOG (GOOG).
But these are just a few of several well-known blue chip stocks in the S&P 500 that could be ripe for a split. Priceline owner Booking Holdings (BKNG), Chipotle (CMG) and AutoZone (AZO) also have stock prices above $1,000.
Sherwin-Williams (SHW), BlackRock (BLK), Nvidia (NVDA), Adobe (ADBE), Domino’s (DPZ), Costco (COST), Home Depot (HD) and Facebook (FB) all have triple-digit stock prices. All of them could be ripe for a split.
“Retail investors, after a long hiatus, are gradually coming back to stocks,” said Michael Kelly, global head of multi-asset with PineBridge. “A stock split is custom made for individual investors. Institutional firms don’t really care about the share price.”
That’s because many big mutual funds, hedge funds and pension funds focus more on valuation metrics like how a company is trading based on its expected earnings and sales growth potential as opposed to the share price.
“Individual investors are paying more attention to the stock price and not the earnings. That’s not long-term investing,” Betancourt said.
No reason to split if investors keep buying?
Still, not everyone is convinced that other high-priced companies are going to rush to split their stocks.
While it’s true that it may be hard to afford one share of Amazon, Robinhood and many other online brokers have launched so-called fractional trading plans that let people buy just a small portion of an individual share.
Many investors are also buying passive index ETFs, which provide exposure to the high-priced FAANG stocks without having to purchase individual shares of the companies themselves. That trend is likely to continue.
“The proliferation of zero-fee online trading and fractional share ownership have largely rendered irrelevant the dollar value of a company’s share price,” said Julian Emanuel, BTIG chief equity and derivatives strategist.
After all, it’s not as if the high prices for one share have scared off that many investors lately. Amazon is up nearly 80% this year. Apple has surged more than 55%. Chipotle has skyrocketed 45%.
And then there’s Tesla. The stock has soared more than 350% in 2020 — despite its hefty price tag of nearly $1,900 for one share.
“There are more choices an investor has besides buying a single stock these days,” said Lindsey Bell, chief investment strategist with Ally Invest, in a recent report about stock splits. She added that “high-priced stocks have also become somewhat of a badge of honor these days.”