It is no secret that stock prices have climbed to significantly high levels and naturally when investors see these high share prices, they often wonder whether the companies will stock split, thus putting more shares on the market but at a lower price.
A company’s overall value remains the same with a stock split, but a shareholder will double the number of shares in their portfolio, and those shares will trade at half the previous price.
Let’s look at some familiar stocks who have seen share prices rise to very high values. We’ll then examine the reasons why a company would choose to split its shares of stock or choose not to.
Amazon [NASDAQ: AMZN]
As of September 18, 2018, Amazon is trading at US$1,946.77. That’s nearly 40 times the price for a share of Coca-Cola. The price for of shares the major online retailer has nearly doubled in the last year. Believe it or not, Amazon did stock splits regularly, doing so three times in a 15-month span in 1998 and 1999. Back then, shares were trading much lower and dipped to single digits. When asked in 2017 whether he’d consider a stock split now, Amazon CEO Jeff Bezos did not rule it out.
Booking Holdings [NASDAQ: BKNG]
Also known as Priceline, this travel service company was trading at nearly US$1,901.60 per share as of September 18, 2018. This high price is at least in part due to a “reverse” stock split in 2003, in which shareholders received one share for every six they owned. The reverse stock split came after a major market downturn that slammed the company’s share prices to nearly US$1.
Thus, there may be some institutional wariness about splitting and allowing prices to get too low and there’s no indication from management that a stock split will be happening anytime soon.
Berkshire Hathaway [NYSE: BRK]
Warren Buffett’s company is perhaps the best example of a company that rarely shows a desire to split its shares of stock. Today Class A shares are trading at more than US $326,000 a piece.
No that’s not an error.
However, Class B shares, which are more available to everyday investors, are trading at US$217.30. The major difference between Class A and Class B is that B shares don’t have the same voting rights as A share. The company split Class B shares 50-1 in 2010, but has never split Class A shares.
Why Split?
- Make shares more affordable for more people.
- Avoid a concentration of shares.
- Allow for greater liquidity.
- Some companies will split shares simply as a way of getting people to believe share values are rising.
Why Not Split?
- Many companies prefer to avoid splitting because they believe a high stock price gives the company a level of prestige.
- Smaller companies may also wish to avoid stock splits because of a danger of share values falling too low.
What are your thoughts on stock splits?
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