Amazon is Kindling a Stock Split: What it Means For Investors

Dan Romanoff says Amazon’s stock will have a fair value estimate of US$192.50 per share following a 20-1 split

Morningstar 7 June, 2022 | 11:15AM
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Amazon

Amazon.com (AMZN) is set to execute a 20-1 stock split, its first in more than two decades and the biggest in its history, handing investors an additional 19 shares for each one they already own. 

The Amazon split is effective with the close of trading on June 3, which means the company's closing price on that day will be divided by 20 to accommodate for the increase in the number of shares. The stock will begin trading on the split-adjusted basis on June 6.

Exhibit 1

What It Means

The split won’t affect Morningstar senior analyst Dan Romanoff’s view on the company, which he values at $3,850 per share before the split. Following the split, Morningstar's fair value estimate for Amazon.com will also be divided by 20, which would value the company at $192.50 per share.

As of June 1, the company was considered 37% undervalued. Morningstar considers Amazon to be a wide moat stock, which means it has a durable competitive advantage.

"Over the long term, we expect e-commerce to continue to take share from brick-and-mortar retailers," Romanoff says.

"We further expect Amazon to gain share online. Critical growth drivers over the medium term will be AWS and advertising. Since these segments earn materially higher margins than the rest of the business, we also expect them to drive margins higher over time."

Upcoming Stock Splits

Amazon is one of several big-name tech and consumer companies planning to split its shares. Alphabet (GOOGL)/(GOOG), Google’s parent company, disclosed plans for a 20-1 stock split for both its Class A and C shares in February, which will take effect on July 15.

Tesla (TSLA) is also planning to put another split to a shareholder vote during its annual meeting on August 4. If that passes, it will be the electric vehicle maker’s second split in three years.

Jakir Hossain was the original author of this article, which first appeared on the Canadian iteration of the Morningstar website

 

 

 

 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc Class A2,174.75 USD-0.21Rating
Alphabet Inc Class C2,181.62 USD-0.27Rating
Amazon.com Inc109.56 USD3.15Rating
Tesla Inc681.79 USD1.24Rating

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