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Chicago, IL – May 25, 2022 – Today’s Zacks Investment Ideas feature highlights Alphabet GOOGL, Amazon AMZN, and Nintendo NTDOY.
3 stock splits investors should keep on their radar
In recent years, a strategy that has gained popularity in the market is the stock split. Typically, a company does a stock split for two reasons: the stock price has become too expensive, which is a barrier to entry for potential investors, and the company is looking to increase the liquidity of his actions.
Of course, a stock split does not affect a company’s market capitalization. However, this reduces the value of each individual stock, making it easier to multiply the stock price and providing investors with significant gains. Additionally, volume increases with a decline in the stock price, which drives the overall stock movement.
Several companies have upcoming stock splits – Alphabet, Amazon and Nintendo. Amazon and Alphabet will both do a 20-to-1 stock split, while Nintendo plans to do a 10-to-1 stock split.
All three companies are aiming to increase liquidity and reduce the price of their shares, a positive move that investors in all three companies can look forward to in all the gloom of 2022. Let’s take a zoomed view of the three companies to see where they stand now.
Nintendo is responsible for many legendary franchises in interactive entertainment, including The Legend of Zelda, Super Mario Brothers, donkey kongand Pokemon.
Year-to-date, Nintendo shares have been much stronger than the S&P 500, marginally down 0.1% and providing investors with a much-needed level of defense.
Moreover, since the announcement of the split on May 10and, the shares gained almost 8% in value, showing that the market reacted well to the announcement of the stock split. In fact, almost any stock split announcement is generally considered a bullish catalyst that drives stocks higher.
Valuation metrics have also come down to reasonable levels. NTDOY currently has a forward earnings multiple of 15.8X, a fraction of its peak of 45.3X in 2018 and well below the median of 20.5X over the past five years.
Affected by a slowdown in the pandemic-induced gaming boom, NTDOY’s full revenue for the current year is expected to decline by around 14%. However, the company smoked triple-digit EPS estimates of 110% in its latest quarterly release. Additionally, the company sports a style score of A for growth.
The 10-to-1 split will come into effect later this year, on October 1.
Alphabet has grown from a search engine to a company operating in cloud computing, ad-based video and music streaming, self-driving vehicles, and more.
GOOGL shares have been hit hard throughout the tech rout in 2022, down nearly 28% and significantly underperforming the broader market.
However, when the company announced the upcoming split in February, shares soared 7.5% the next day. Once again, it seems market participants have fully welcomed the stock split – it’s no secret that GOOGL shares have become expensive, limiting overall trading volume and driving potential investors away.
Adverse price action throughout 2022 caused GOOGL’s forward earnings multiple to return to 19.8X, well below 2020 highs of 39.1X and well below the median of 27.3X over the past few years. last five years.
In its most recent quarter, to the surprise of many, GOOGL missed EPS by almost 5%. However, the company has a style score of B for value and a style score of A for growth.
The 20-to-1 split goes into effect July 15.
Amazon has become an e-commerce giant with global operations. The company also enjoys a dominant position in the cloud computing space with its Amazon Web Services (AWS) operations.
AMZN stocks have seen a slump in glory in 2022, falling nearly 40% and grossly underperforming the broader market.
Like NTDOY and GOOGL, the market reacted very well to the upcoming split, pushing shares up 6% the day after the announcement. The split was a bit of a surprise – AMZN hasn’t split since 1999. Also, like GOOGL, Amazon shares had become quite expensive, reducing overall trading volume and driving potential investors away.
A less-than-ideal start to 2022 for Amazon shares saw its forward price-to-sales ratio drop to 2.1X, off 2020 highs of 4.8X and well below the median of 3.3X over the past five years. Additionally, the current value represents a 41% discount to the S&P 500’s 4.1X forward price-to-sales ratio.
However, AMZN’s outlook has changed drastically and it will be worth investors to tread carefully in this stock.
The company missed EPS expectations by 52% in its latest quarter, sending shares on a steep downward trajectory after the report. Additionally, analysts have been rapidly lowering their EPS estimates across the board, with current annual earnings expected to fall 83% year-over-year.
AMZN ranks Zacks #5 (strong sell), which paints a depressing picture for AMZN stocks in the short term. The only bullish catalyst I can find is the upcoming stock split, which will take place on June 3 this year.
The stock splits are a positive announcement that should excite current and potential investors. With some of these once high-flying stocks, such as AMZN and GOOGL, stock prices had become too expensive, causing potential investors to walk away and restrict overall volume.
With splits, liquidity within the shares is increased. Moreover, it allows investors to reap considerable gains as the stock goes up.
Due to current market conditions and updated outlook, I believe it is vital for investors to wait before buying AMZN stock – the company is a Zacks Rank #5 (Strong Sell). The weather will return for Amazon, but for now the safest game is to stay away.
For GOOGL and NTDOY, the equity outlook is much brighter when paired with the upcoming splits.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.