Amazon stock split could lure retail traders in tough market

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Amazon’s logo is seen at the company’s logistics center in Bretigny-sur-Orge, near Paris, France, December 7, 2021. REUTERS/Gonzalo Fuentes/Files

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NEW YORK, June 6 (Reuters) – Amazon’s (AMZN.O) stock split could bring some comfort to shareholders who have seen the e-commerce giant’s shares take a beating this year.

Amazon shares rose 3.1% to $126.17 in afternoon trading after the 20-to-1 split, announced earlier this year but went into effect on Monday. They have fallen 24% since the start of the year, which is roughly comparable to the loss of the Nasdaq Composite (.IXIC), as rising interest rates reduce risk appetite and make pressure on the shares of high-growth companies.

While a split won’t affect a company’s fundamentals, it could help support its stock price by making it easier for a wider range of investors to own the stock, participants said. at the market.

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“Stock splits are definitely associated with successful stocks,” said Steve Sosnick, chief strategist at Interactive Brokers. “The psychology remains that stock splits are good. We can debate whether or not they are, but if the market sees them as a positive, then they act as a positive.”

Analysts at MKM Partners believe the rally in Amazon shares since May, in which they have cut their year-to-date loss by a third, has been helped by the anticipation of the split.

“While we view this event as a largely non-fundamental event, we believe a stock split and potential retail activity could provide additional catalyst to turn sentiment on AMZN stocks,” Rohit Kulkarni said. from MKM in a note on Monday.

Stock splits can result in additional participation from retail investors, who, on average, tend to trade smaller sizes due to their limited capital, compared to institutional investors, according to a Cboe report released in May.

The effect was more pronounced for larger market cap stocks, according to the report, which analyzed 61 stocks across all market cap categories that have split since 2020.

Peng Cheng, head of big data and artificial intelligence strategies at JPMorgan, said retail investor exposure to Amazon shares was relatively weak, compared to robust retail activity in Amazon’s options. company – a sign that a four-digit course may have been deactivated. individual traders.

“Psychologically, it doesn’t feel good to spend $1,000 and own a third of a stock,” he said.

BofA Global Research found that splits “are historically bullish” for companies that embrace them, with their shares marking an average return of 25% a year later versus 9% for the broader market.

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Stock splits could increase the pool of investors able to get into options, especially for high-dollar stocks, analysts said.

For example, on Friday, a trader wishing to bet on a 12% rise in Amazon shares by July 1 would have had to pay around $2,900. On Monday, a bet on the same percentage gain in stocks as of July 1 would cost around $135, according to Reuters calculations.

Still, options aren’t as prominent in the market as they were last year at the height of the so-called meme stocks mania.

“If this had happened a year ago, when individual traders fell in love with call speculation in a way none of us had seen before, it would have been a lot more explosive” , Sosnick said.

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Of course, a stock split alone is unlikely to be enough to overcome the host of other factors that have dragged stocks down this year, including concerns over monetary policy tightening and inflation. high for decades.

At the same time, the rise of commission-free trading and the advent of fractional shares have removed some of the immediate appeal of stock splits for investors, said Randy Frederick, vice president of trading and derivatives from the Schwab Center for Financial Research.

“It’s not as big as it used to be,” Frederick said.

Amazon is the latest megacap company to split its shares. 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 to take effect next month.

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Reporting by Saqib Iqbal Ahmed and Lewis Krauskopf; Additional reporting by John McCrank; Editing by Ira Iosebashvili and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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