The movement of stock prices may vary if you plan to make a stock split in the near future. There is no definitive way to invest in it, but there are certain trends that can be used to analyze a stock that is scheduled for a stock split soon.
Alphabet (NASDAQ:): Inc (NASDAQ: GOOG) (GOOGL) will split 20 for 1 on Monday, making it PreMarket Prep stock for the day.
Traditional Pattern Often when a major stock announces a stock split, its price experiences a temporary rally that does not always last in the long term. Instead, when the initial euphoria wears off, what happens is the stock returns to the area it was in before or drops and consolidates.
In many cases, the stock rebounds on the recording date (when shareholders have to own shares to participate in the split) and even several days later. When the actual split occurs, some of the pre-split profits are lost.
The timing of the split of the two companies perfectly timed their stock split and provided investors with an unexpected profit from this non-financial event.
In the case of the two companies, Apple Inc (NASDAQ: NASDAQ 🙂 and Tesla Inc. (NASDAQ:NASDAQ :), there have been bold buyers since the initial announcement, right up to the listing date and a day or two after the split.
Tesla was the biggest beneficiary of financial engineering. When Tesla announced its stock split in August 2020, its shares rose more than 60% in the two and a half weeks between the announcement and the actual split.
Keep in mind that this was in August 2020, when the markets were in take-off mode after declines recorded due to Covid-19 in March.
Related Link: Alphabet for a 20-1 Stock Split on Friday
Different environment, different interactions The timing of Amazon.com Inc. can’t be. (NASDAQ:NASDAQ 🙂 To make a 20-for-1 stock split is even worse. Just as the 2022 bear market was taking a breather, Amazon announced the split on March 6.
The stock reacted fairly well to the initial announcement, but later collapsed with the rest of the market. The stock’s rally from the $140 area to the March 29 high ($170.83) faded and the stock slipped beyond that level.
In fact, the only way to profit from a stock split was to buy the stock four days before its record date (May 27), when the stock hit a low of 101.26 and ended the trading day at $104.10. On the actual record date, the stock closed at $115.21. The stock continued to rise and peaked on the effective date of the split, June 6, at $128.99.
Over the course of five days, it fell again to hit a new low.
who cares? As with Amazon, it was very difficult to extract any alpha from investing in Alphabet’s equity division. Of course, the market environment had a lot to do with it.
In its earnings report on February 1, the company announced that it would conduct a 20-for-1 stock split.
On Friday, shareholders will receive an additional 19 shares for every share they own on the July 1 standard date.
On February 2, the stock rose from $2,757.57 to $2,960.73 which translates to a gain of $203.16, or 7.4%. The stock bounced back from that high the day after the record date, at $2,124.99.
Interestingly, Alphabet rebounded nicely from the bottom and reached its highest level on July 8 at $2,408.70. From this level, it fell back to the $2,220 area. Alphabet will begin trading based on the stock split on Monday, July 15.
Buyers warned that while there is a possibility that the stock price may experience a temporary rally following the announcement of the stock split, it is likely that what happened with the Tesla split will not happen again. And the most important reason is this: A stock split doesn’t change any of the company’s fundamentals, it just changes its price. What matters most is what will happen to the company’s budget in the future.
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