Shopify (SHOP) stock split the latest in 'moon' trend
20:23, 8 June 2022
Canadian e-commerce company Shopify (SHOP) is the latest company jumping on the stock-split bandwagon, hoping to boost its falling share price by attracting new investors with a cosmetically low share price. While the tactic worked, Shopify stock traded up to 4.09% higher Wednesday, splitting a stock has negligible long-term value for shareholders.
Shopify Inc. (NYSE: SHOP) 8 June
“It’s interesting because the last two or three years were dominated by headlines about SPACs and IPOs,” said brokerage tastyworks CEO Scott Sheridan. “That market has dried up a bit, but has been replaced by splits.
After announcing its 10-for-1 stock split Wednesday morning, Shopify hit a $396.05 per-share session high shortly after the opening bell, versus Tuesday’s 380.47 closing share price. The split takes effect on 28 June. Shopify stock trades on the NYSE under the ticker SHOP.
“They know the quickest way to moon a stonk (send a stock to the moon) isn't through innovation or performance,” added daily newsletter The Water Coolest. “It's through stock splits.
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Shopify Inc. (NYSE: SHOP) price chart
Splits lead to short-term gains
"A benefit of a stock split is the price does become more affordable to more people, even though the overall valuation of the company hasn’t changed,” said Sheridan. “[Shopify] feels by reducing the price of the stock there is a broader market of potential investors that becomes more accessible which hopefully leads to the stock price being bid up.
Shopify Inc. (NYSE: SHOP) YTD
While stock splits typically result in short-term gains immediately following the announcement, and then in the run-up and aftermath of the lower split-adjusted share price, there is no material impact on the long-term price in a broader sell-off.
Shopify stock is down 72.3% year-to-date and off 78.6% from its $1,763 per-share 52-week high achieved last November
DexCom 4-1 split on Friday
“Stock splits gained popularity early this year as equity indices traded near record highs, with companies announcing them to make their share prices more appealing to investors,” noted Axel Rudolph, market analyst at IG. “But now have less of an impact with technology stocks having shed a large percentage of their previous gains.”
DexCom Inc. (Nasdaq: DXCM) 1-week
Biotech DexCom (DXCM) is currently experiencing a pre-split gain, trading 9.24% higher to over $310 per share over the past five sessions ahead of a previously announced four-for-one split taking effect Friday. After announcing the split, DexCom stock initially spiked 13.4% from $486.93 to $531.57 in the week after the split announcement.
From 1 April through 1 June, however, DexCom stock lost 87.3%. DexCom stock trades on the Nasdaq exchange under the ticker DXCM.
DexCom Inc. (Nasdaq: DXCM) price chart
Splits offer temporary gains
“Conventional thinking is often that splits lead to more people buying and subsequently pushing prices higher,” added tastyworks’ Sheridan. “And while that can happen, there have been instances where the stock either doesn’t move or actually falls.”
Case in point is Amazon (AMZN), which effected a 20-to-1 stock split on Monday, and has subsequently gained 20.6% on a split-adjusted basis, but has lost 28.7% year-to-date.
“Amazon shares briefly rose after the split but have been coming off since, still down over 28% year-to-date,” added IG’s Rudolph. "So far, the Amazon share price has climbed to $128.95 in early June before stumbling around the 200-week simple moving average at $127.13, and trading back near its two-month resistance line at $121.80.”
The motivation for a company like Amazon to split its stock, may be driven by a desire for index eligibility, and the prestige and liquidity that follow. “This has made it more manageable for giant companies such as Amazon to enter the Dow Jones Industrial Average (US30), whose weighting is based on the share price,” noted Rudolph.
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