Amazon Stock Split May Draw Retail Traders In Tough Market.

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Amazon’s (AMZN.O) stock split may provide some solace to shareholders who have seen the e-commerce giant’s shares battered this year.

Amazon shares were up 3.1% to $126.17 in afternoon trading after the 20-for-1 split, announced earlier this year but which took effect Monday. They have fallen 24% year-to-date, roughly comparable to the loss in the Nasdaq Composite (.IXIC), as rising interest rates slam risk appetite and pressure shares of high-growth companies. While a stock split has no effect on a company’s fundamentals, market participants feel it could help improve its share price.

“Stock splits are certainly associated with successful stocks,” said Steve Sosnick, chief strategist at Interactive Brokers. “The psychology remains that stock splits are good. We can argue whether they are or are not, but if the market believes they are, they will act accordingly”. Stock splits 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-Cboe .

The effect was most pronounced for stocks with larger market capitalization. Peng Cheng at JPMorgan, said retail investors’ ownership in Amazon’s shares had been comparatively low. “Psychologically, it doesn’t feel good to spend $1,000 and own a third of a share,” he said. BofA Global Research has found that splits “historically are bullish” with their shares marking an average return of 25% one year later versus 9% for the market overall. Stock splits may increase the pool of investors able to dabble in options. On Friday, a trader who wanted to bet on Amazon shares growing by 12% by July 1 would have had to spend around $2,900. A bet for the same percentage gain in the stock by July 1 cost around $135 on Monday. “It’s not nearly as big a deal as it used to be in the old days,” Frederick said.

Amazon is the latest megacap company to split its stock. 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-for-1 stock split in February, with its split expected to take effect next month.

-Reuters

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