Why do stock prices fluctuate? Do the prices rise or fall along with fluctuation in cash flow and market value? Do other factors like investors’ expectations, outlook beat, market data, and quarterly earnings impact stock prices? Well, all these factors determine the share price for companies like Amazon.
Amazon shares are now trading at 24% below its all-time high price of about $189. The median stock price change occurred 11 months after Jeff Bezos stepped down for Andy Jassy as the company’s CEO. Hence, they announced a stock split that will probably attract options traders and retail investors to invest more money into its stock.
In any case, the stock split rewarded 19 new shares to investors holding stocks before 27th May. It resulted in Amazon stock's cheaper price, making investors feel its shares are more affordable. Nonetheless, the lower price reflects a 95% plunge in every new share of the company’s equity.
What’s more, the lower Amazon stock price doesn’t make shares worthy of a bargain. New investors have sadly recorded a disappointing first quarter 2022 outlook and performance. Thus, Andy should strategize to boost the company’s revenue growth. This move will persuade investors and assure them the stock will amass higher returns to revamp the slowing growth.
The company’s board has approved its first stock split since 1999, and allowed stakeholders to vote on it in May. They voted yes for the stock split and effected it on 6th June to push for a $2 rise in Amazon’s shares. Each Amazon share was worth massive market values of $2,447 on 3rd June before the split became effective.
The Impact of the Amazon Stock Splits
Experts explain that stock splits can increase retail money flow into stocks. It can also facilitate various options trades that might have been more costly to traders in the previous days. Furthermore, it can increase shareholders' returns and sour market sentiment in a short period. It may impact the DOW Jones industrial average, the sticker price originally envisioned and the rental company MPM rent.
MKM partners’ research shows that stock splits in the last ten years outperformed the S&P 500 within six or three months. In other words, the effect can be slight, but it can cause a new retail money flow. Schaeffer’s Investment Research in 2020 shows that the average return for such companies after the stock split is about 5.3% to 0.9% more than the S&P 500 average profit.
Trading options allow stock investors with an ownership position in very few companies to hedge their bets. Generally, lower stock prices reduce option prices which help to boost the options market's liquidity. Thus, traders are betting that Amazon stock may increase to allow the company to manage risks of future Amazon stock decline.
For instance, if they held about 100 shares on 3rd June, the cost would be about $244,700 at that time. Later on, on 6th June, after the split became effective, the stock market equivalent was trading at $12,235. Above all, the rise in Amazon shares count can replace Apple with the highest stock options volume. For example, Amazon closed 2.611 million broad market selloff contracts on 6th June, which exceeded Apple contracts by about 172%.
