The Amazon logo is displayed at the company’s logistics center in Bretigny-sur-Orge, near Paris, France, on December 7, 2021. REUTERS / Gonzalo Fuentes / Files
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NEW YORK, June 6 (Reuters) – Amazon’s stock division (AMZN.O) may provide some consolation to shareholders who have seen the shares of the e-commerce giant mistreated this year.
Shares of Amazon rose 3.1% to $ 126.17 in trading in the afternoon after the 20 per cent split, announced earlier this year but coming into effect on Monday. They have fallen 24% to date, roughly comparable to the loss of the Nasdaq Composite (.IXIC), as rising interest rates curb the risk appetite and pressure actions of high-end companies. growth.
While a split has no bearing on a company’s fundamentals, it could help raise the price of its shares by making it easier for a wider range of investors to own the shares, market participants said.
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“Stock splits are definitely associated with successful stocks,” said Steve Sosnick, chief strategist at Interactive Brokers. “Psychology is still that stock divisions are good. We can debate whether or not they are, but if the market perceives them as positive, they act as positive.”
Analysts at MKM Partners believe that the recovery in shares of Amazon since May, during which they have reduced their losses by a third to the year, has been helped by the anticipation of the division.
“While we consider this event largely non-core, we believe that a division of shares and possible retail business could provide an incremental catalyst to change sentiment about AMZN’s shares,” said MKM’s Rohit Kulkarni in a note Monday.
Stock divisions may drive additional participation from retail investors, who, on average, tend to trade in smaller sizes due to their limited capital, relative to institutional investors, according to a Cboe report released in May.
The effect was most pronounced for stocks with a larger market capitalization, according to the report, which analyzed 61 shares of all market capitalization categories that have been split since 2020.
Peng Cheng, head of big data and AI strategies at JPMorgan, said retail investor ownership in Amazon shares had been relatively low compared to the company’s strong retail options, a sign that a four-digit stock price could have been going off. individual traders.
“Psychologically, it doesn’t feel right to spend $ 1,000 and have a third of a share,” he said.
BofA Global Research has found that divisions are “historically bullish” for the companies that enact them, with their shares marking an average return of 25% a year later compared to 9% for the market as a whole.
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Analysts said stock divisions could increase the group of investors able to introduce options, especially for stocks with a high dollar value.
For example, on Friday, a trader who wanted to bet on Amazon shares that could be 12% on July 1 would have had to pay about $ 2,900. On Monday, a bet on the same percentage of earnings on shares on July 1 cost about $ 135, according to Reuters calculations.
However, the options are not as strong in the market as they were last year at the height of the so-called meme-stock craze.
“If this had happened a year ago, when individual traders were in love with call speculation in a way that none of us had seen before, that would have been much more explosive,” Sosnick said.
stock divisions
Of course, a stock split alone is unlikely to outperform a number of other factors that have brought stocks down this year, including concerns about tighter monetary policy and decades of high inflation.
At the same time, the rise in trading without commissions and the arrival of split shares have drawn some of the immediate appeal of investor stock divisions, said Randy Frederick, vice president of trade and derivatives at Schwab. Center for Financial Research.
“It’s not as big as it used to be,” Frederick said.
Amazon is the latest megacap company to split its shares. Other companies that have split their shares since 2020 include Apple (AAPL.O), Tesla (TSLA.O) and Nvidia (NVDA.O).
Alphabet Inc. (GOOGL.O) also announced a 20-per-share share split in February, and its split is expected to take effect next month.
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Report by Saqib Iqbal Ahmed and Lewis Krauskopf; Additional report by John McCrank; Editing by Ira Iosebashvili and Nick Zieminski
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