Yesterday, Amazon
AMZN
shares started trading at post-split levels, undoubtedly to the likes of market participants. The e-commerce giant performed a 20-for-1 split, and the announcement earlier this year came as a bit of a surprise – it’s Amazon’s first stock split since 1999.
When the news first broke that AMZN would be splitting on March 9th, shares jumped nearly 6% the next day. Clearly, the market reacted well to the announcement. Additionally, AMZN shares have been hot over the last week, signaling that buyers have arrived to benefit from the split.
A steep share price tag was undoubtedly a reason behind the stock split, as it represented a significant barrier to entry for investors. Overall trading volume increases with a lower share price, boosting liquidity within shares.
It’s critical to know that stock splits don’t affect a company’s overall valuation, but it does lower the value of each share, providing ease for the stock to multiply once again and provide investors with considerable gains.
The stock split strategy has gained popularity over the years, and perhaps the most famous example is the all-mighty Tesla’s
TSLA
5-for-1 split in August 2020. Following the split, shares skyrocketed thanks to an influx of new buyers.
Two more companies with upcoming splits include Alphabet
GOOGL
and Nintendo
NTDOY
.
Alphabet has a 20-for-1 split planned to take place on July 15
th
, and Nintendo’s 10-for-1 split takes place a little later this year in early October.
Let’s get into why these companies’ splits should remain on your radar.
Alphabet
Alphabet
GOOGL
has evolved from primarily a search engine into a company with operations in cloud computing, ad-based video and music streaming, autonomous vehicles, and more. Year-to-date, shares have been a victim of the tech rout, declining nearly 20% and underperforming the general market.
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Although the share performance is a bit disheartening, valuation multiples have come well off their highs, marking a rich buying opportunity not seen in some time. GOOGL’s current forward earnings multiple resides at 20.9X, nearly half of its 39.1X high in 2020 and well below the median of 27.2X over the last five years.
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Alphabet has consistently beat bottom line estimates, exceeding EPS estimates in eight of its last ten quarterly reports. Over its last four quarters, the company has acquired an average four-quarter trailing average EPS surprise of a notable 17%.
Additionally, Alphabet sports a robust cloud computing segment, aiding substantial revenue growth and has been a major key catalyst. The company’s cloud offerings include Google Cloud Platform and Google Workspace, which are continuously gaining momentum in the booming cloud computing market.
Google Cloud raked in $6.4 billion in revenue in its latest quarter, displaying a sizable 41% growth from the year-ago quarter. Since FY17, Google Cloud revenue has grown by a massive 375%.
Nintendo
Nintendo
NTDOY
is a worldwide leader in game development and publishing. A few of its beloved game franchises include familiar names such as
Donkey Kong, Pokémon, The Legend of Zelda, and Super Mario Brothers.
Year-to-date, shares have shown a practical level of defense, declining nearly 6%, while the S&P 500 has declined approximately 16%.
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In addition to defensive shares, Nintendo also sports a 14.9X forward earnings multiple, not anywhere close to 2018 highs of 45.3X and well below the five-year median of 20.5X. Additionally, the value represents an attractive 16% discount relative to the S&P 500’s forward P/E ratio of 17.9X.
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Nintendo has had zero problems exceeding bottom line estimates, chaining together ten consecutive quarterly EPS beats dating back to 2019. Over its last four quarters, NTDOY has acquired a 47% average EPS surprise, and in its latest report, the company beat on the bottom line by a massive 110%.
The Nintendo Switch, the company’s flagship console, has been a massive hit across the globe. As of December 2021, the console’s unit sales surpassed 103 million, becoming its best-selling home console of all time just four years after release, pushing its famous Wii out of the top spot. The 2022 gaming lineup for NTDOY includes hit classics, such as new installments in the
Pokémon
series that are expected to bring substantial sales.
NTDOY’s gaming revenue saw a remarkable increase from 2020 to 2021, jumping 37% and raking in $16.5 billion, boosted by Nintendo’s library of 29 titles that have sold over a million copies.
Bottom Line
Stock splits are always an exciting announcement that investors can receive. It allows more investors to buy in, boosting overall trading volume and share movement. Generally, it’s a sign that a company is in good health.
Amazon isn’t the only big player with a split in 2022, as Nintendo and Alphabet both have their own splits planned as well.
Both GOOGL and NTDOY aim to boost liquidity within their shares – something that investors of both companies can celebrate.
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