Many firms and founder owners enhance the value of their respective firms in the public equity markets by conducting stock splits. While stock splits do not necessarily create economic value in the ordinary sense, but they do have a positive impact on the stock price usually. The psychology of investors makes them more attracted to smaller numbers when considering a stock for purchase, other things being equal. And a stock split gives a boost to liquidity in the market for that company as well. These 3 firms can create incremental shareholder value by splitting their stocks:
1. Amazon.com, Inc. (NASDAQ:AMZN)
The e-commerce giant’s stock has performed very well in 2013, and is now trading at all-time highs. The company has a very good position in its ever increasing number of business segments. In addition, to being the online retailer of choice, the company has thriving businesses in cloud computing, advertising, hardware devices and entertainment. The company’s CEO has made it very public in his company’s intention to build a very valuable company in the long-run by making large investments in its various operating segments.
Amazon.com, Inc. (NASDAQ:AMZN) has more than 209 million registered customers in its platform who love shopping on its site, and merchants who want to sell on Amazon. The company’s market cap has surpassed the $140 billion mark with a share price of $308. Amazon.com, Inc. (NASDAQ:AMZN) became a publicly traded company in 1997, and it has undergone 3 stock splits already during the Internet bubble of 1998-2000. And the company can create additional value for its stockholders by creating another stocks split driven by momentum traders at current levels, since it is trading at record highs.
The company now operates in roughly 10 countries, but in the future Amazon.com, Inc. (NASDAQ:AMZN) will almost certainly expand into newer countries and develop more e-Commerce platforms. And Amazon can sustain double digit revenue growths for a number of years, as the company earns incremental revenues from its newer business ventures
And also some of Amazon.com, Inc. (NASDAQ:AMZN)’s smaller revenue outlets including Third Party (3P) selling, Amazon Web Services and the Advertising business has much higher profit margins compared to its core retail business. An improved margin profile will create a much more clear and compelling valuation case for Amazon in the future as well.
2. Apple Inc. (NASDAQ:AAPL)
Apple Inc. (NASDAQ:AAPL)’s stock has been clouded with a lot of pessimism, even though the company has announced big dividend payments and sizable share repurchases. Investors have become skeptical of Apple not revealing much about its product pipeline, and are questioning its ability to innovate. And also the company’s growth rates are slowing down, and profit margins are contracting. However, the company still rolls out healthy profits on an absolute dollar basis, and has a big fan following as well. Also, Apple Inc. (NASDAQ:AAPL) has in excess of 575 million registered users of its services.