Topline
Wall Street experts are bullish about Google-parent Alphabet ahead of the company’s 20:1 stock split, arguing that the move will make shares more affordable to investors and presents a buying opportunity since the stock is expected to keep rising.
Alphabet CEO Sundar Pichai.
Key Facts
A wave of Wall Street analysts hiked their price targets for Alphabet’s stock, with some predicting shares could surge more than 30% after blowout quarterly earnings and the announcement of a 20:1 stock split.
Traditional wisdom on Wall Street says stock splits (which makes shares more accessible to retail investors) don’t do much in terms of market value but there’s evidence that the move does provide a short-term boost.
“We all know that [a stock split] does not increase the fundamental value of a company… but from what we’ve seen in the market with Tesla and Nvidia, people like to chase splits,” says David Wagner, portfolio manager and senior analyst at Aptus Capital Advisors.
Alphabet’s stock split now presents an “enhanced buying opportunity” after the recent sell-off in tech shares and could “potentially drive” the company’s inclusion into the price-weighted Dow Jones Industrial Average, adds CFRA Research analyst Angelo Zino, who has a “strong buy” rating on the stock.
Shares of Alphabet, which surged as much as 10% on the news, are currently trading for just under $3,000 per share; if the split occurred today, existing investors would receive 19 additional shares worth roughly $150.
If the stock split is approved by shareholders in July—and Alphabet’s stock continues to surge, as analysts predict—the company could become the next Big Tech giant to surpass a $2 trillion market valuation, following the likes of Apple (worth $2.8 trillion) and Microsoft (worth $2.3 trillion).
Crucial Quote:
“Everyone knows that stock splits are completely meaningless when it comes to a company’s fundamentals, but yet companies continue to split their stocks anyway, and more often than not, the price of a stock gets at least a short-term boost from the announcement,” according to a note from Bespoke Investment Group. “The split means nothing in terms of Alphabet’s fundamentals, but it does make the stock more palatable for investors looking to add a position.”
Key Background:
Alphabet’s stock split was announced by its board on Tuesday as part of its fourth quarter earnings report, which blew past analyst expectations. Shareholders will vote on the 20:1 split in July later this year. If history is any guide, Alphabet’s market value could surge in similar fashion to other mega-cap companies like Apple and Tesla, which announced stock splits in 2020. Apple gained over $500 billion in value just one month after announcing a 4:1 stock split in July 2020 for instance, while Tesla shares gained over 70% in the 20 days between the announcement and completion of its 5:1 stock split in August 2020.
Further Reading:
Alphabet Surges 10% After Blowout Earnings, Here’s What The 20:1 Stock Split Means For Investors (Forbes)
Source: https://www.forbes.com/sites/sergeiklebnikov/2022/02/02/alphabets-historic-stock-split-means-more-investors-can-buy-shares-but-heres-what-analysts-say/