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Shopify (SHOP) stock split the latest in 'moon' trend

By Kevin Donovan

20:23, 8 June 2022

Shopify sign on headquarters building in Toronto, Canada
Shopify latest to tap stock-split gains as shares fall YTD - Photo: Shutterstock

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

Shopify Inc. (NYSE: SHOP) 8 JuneShopify Inc. (NYSE: SHOP) 8 June - Photo: TradingView

“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 “That market has dried up a bit, but has been replaced by splits.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

Shopify Inc. (NYSE: SHOP) YTDShopify Inc. (NYSE: SHOP) YTD - Photo: TradingView

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

DE40

18,503.90 Price
-0.150% 1D Chg, %
Long position overnight fee -0.0221%
Short position overnight fee -0.0001%
Overnight fee time 21:00 (UTC)
Spread 1.5

US30

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+0.010% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
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Spread 11.0

HK50

16,611.20 Price
+0.700% 1D Chg, %
Long position overnight fee -0.0233%
Short position overnight fee 0.0014%
Overnight fee time 21:00 (UTC)
Spread 30.0

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5,247.80 Price
-0.060% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 1.7

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

DexCom Inc. (Nasdaq: DXCM) 1-weekDexCom Inc. (Nasdaq: DXCM) 1-week - Photo: TradingView

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.  

Markets in this article

DXCM
DexCom
138.83 USD
-0.81 -0.580%
SHOP
Shopify Inc (US) (Extended Hours)
77.25 USD
-1.56 -1.990%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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