Alphabet's 20-to-1 split is not the reason you buy the stock
1. Google's parent company, $Alphabet(GOOG)$$Alphabet(GOOGL)$Alphabet, is going for a 20-to-1 stock split. Many investors are drawn to the event and even see it as a buying opportunity.
2. Before you get carried away, stock split is a cosmetic exercise and has no change to the company's business fundamentals. Let me explain.
3. A stock split is aimed at reducing the stock price by increasing the number of shares. Stocks that have done well over the years would see the prices soar and to a point that it priced out more investors.
4. For example, Berkshire Hathaway A doesn't do any stock split and it is trading at $473,000 per share. Hence, most companies pursue stock split to lower the stock prices.
5. How do they do it? By increasing the number of shares. In Alphabet's case, the number of shares will increase by 20x and the share price will come down by 20x correspondingly - the current trading price of $2,865 will lower to $143.25.
6. If you have 100 shares pre-split, your position would be worth $286,500 (100 x $2,865). After the split, you will have 2,000 shares and your position would still be worth $285,000 (2,000 shares x $143.25).
7. Hence, a stock split does not increase your net worth. It just increases the number of shares (while reducing the share price).
8. Bonus issue on the other hand has some fundamental impact because retained earnings are shifted to paid up capital, and in turn reduces the ability to give dividends. Stock split is purely cosmetic without capitalisation of retained earnings.
9. Granted that Alphabet's share price can still go up after the split but that is not because of the split. There are a myriad reasons why share price goes up - it could be growth better than expectation (fundamental reasons) or traders bid it up (sentiment reasons) or market buoyancy (macro reasons) etc.
10. Hence, look beyond the stock split if you want to buy Alphabet. The event itself is not the reason to buy the stock.
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- twizzy·2022-02-07Page and Brin's approach is to lower the stock price and let more investors buy the company's stock. Further boost the company's share price by increasing liquidity. Look at Apple and Tesla. After a large proportion of share split, the share price has risen.10Report
- surfer guy·2022-02-08Thanks Alvin for your insughts and you laid out convincing information that I might have overlooked. My refrrnce of Apple solit might not hold for other stocks5Report
- snoozii·2022-02-07The threshold for investing in Google is lowered again. The company's current share price is very expensive for many retail investors. However, if calculated according to the price of $2,865, the price per share will be reduced to $143.25 after the split, and the threshold for investing in Google will be lowered again.2Report
- Mabelicious·2022-02-08Agree, but as a retail investor, the price per share makes it more accessible after stock split. This is a great company with solid fundamentals, so I would still buy!4Report
- PET·2022-02-08I guess the key benifit after the split might be allow google to be able to enter into DIA 30. By Kicking out IBM , CSCO , INTC, BA or ……1Report
- zippiee·2022-02-07Perhaps from the very beginning, Google's co-founders learned the most useful trick from Warren Buffett: choosing their own shareholders and constantly improving the interests of shareholders.5Report
- BaronLyly·2022-02-07I hope that Alphabet's share price can still go up after the split, I can buy more when the stock goes down4Report
- KeN3·2022-02-08Increased number of shares in the market to allow more retail investers, also giving more liquidity to the company2Report
- kiwicub·2022-02-14Points noted. However, the lower price allow entry of more retail investors which might push up the price in the immediate period after the split.1Report
- SteadyDoesIt·2022-02-13Good to point it out. Many blindly plough ahead without looking at the real whys. Growth potential is still intact even though $Alphabet(GOOGL)$ has been in advertising business for so longLikeReport
- CL777·2022-02-09$2700 will be nice to addLikeReport
- JiakLiulian·2022-02-09It’s relatively a fundamentally strong company to buy though.2Report
- mster·2022-02-11Am i wrong to say that the IV may increase with the share price being lower as it’s more acessable to Options trading.LikeReport
- AzriTan·2022-02-10This is completely logical. But at the same time, stock splits in recent years have been proven to increase share prices.LikeReport
- YSLiu·2022-02-08I will have 40 shares2Report
- ChristKitto·2022-02-07There are many factors that determine a company's stock price. Stock splitting does help to reduce the cost of stock.LikeReport
- ChristKitto·2022-02-07It's very clear, very simple, and we still have to look at the fundamentals of the company, not the split itselfLikeReport
- ShandyTan·2022-02-10I will buy after split, it will be a worth investmentLikeReport
- highhand·2022-02-09my longing for ABC soup is the reason I buy.. yummy!LikeReport
- Michelle Ong·2022-02-09Like back thanks1Report