In recent years, an AMZN stock split, or one for any of the other tech giants for that matter would have been a prime opportunity for a rally, and a period of sustained upward momentum.
Despite the disappointing start to the year for Amazon, with AMZN stock shedding some 29% of value YTD, there was the anticipated rally post 20 for 1 stock split announcement. The rally in the build up to the stock split itself had reached upwards of 15% in the past month, before the now c.4% reversal we have seen in the past 3 trading days.
AMZN stock split does not give you any additional real value
The fact that AMZN stock is trading in a natural way should not be a surprise to fundamental traders, or value investors, as there is in fact no additional value provided by a stock split, apart from the perceived one of price. As a percentage of Amazon stock ownership, there is no change at all when all shares are multiplied out by a factor of 20, but perception can be a funny thing in the markets in recent times.
There is one argument that holds a little truth in the value of a stock split from a fundamental perspective in history, which was the affordability argument. It is of course much more affordable to buy 1 AMZN stock at closer to $120 than it is at $2500, but in the days of fractional share ownership, is that still a factor that holds any weight?
Some would say yes, and that not all stock trading platforms will support fractional ownership, and not all investors would want to buy less than 1 share, for want of feeling like they don’t really have that much skin in the game. So yes, there is some value in a stock split, but nowhere near as much as the rally usually gives up.
Is the AMZN stock Split rally over?
This is a question that is difficult to answer, but is likely going to be a mix of multiple factors that weigh in on the result.
Firstly, we have a stock market that is firmly in bear market territory, a far cry from what have seen during recent stock split rallies to the upside. It is clearly easier to get a stock split bounce during a bull market than a bear market, and we may be seeing that play out.
The macro conditions of the market are very different from a consumer spending potential aspect than they have been in recent times. The weight of recent record high inflationary pressures, and the energy price crisis, are certainly not helping the underlying business of Amazon. Higher energy costs eat into the transportation element of the business that delivers in the blink of an eye, and with inflationary pressures squeezing household income, those discretionary items become that much less attainable for wider segments of the market.
Then we have Covid19 now firmly in the rear view mirror (at least as far as media output goes), which means more people are shopping in person than in the past couple of years, applying further pressures on any of the stay at home businesses that had it so good.
Where does AMZN stock go from here?
Taking into account the wide range of analysts that cover AMZN stock gives us a pretty broad view of the opinions up and down the street. Looking at the analyst coverage and price predictions aggregated on Tipranks gives us a pretty clear indication that the consensus is firmly behind AMZN stock staging a further rally in the periods ahead.
If the analysts are even close to being right, with an average price target post AMZN stock split of $180, some 50% upside from here, this is one stock that could be a very good place to be in the year or two ahead.
That being said, if the Fed are not so market friendly in upcoming sessions, the economic indicators don’t turn, and the looming recession actually becomes a reality, there could still be a discount available on the AMZN stock price before the expected rally finally comes to fruition.