Stock splits have become more frequent on Wall Street in recent years. alphabet, Amazonand tesla Join the trend. Stock splits may not dramatically change a company’s valuation, but they can serve a purpose, such as allowing more retail investors to buy shares at a lower price.
One technology company that has not participated so far is meta platform (meta -0.43%), Facebook, Instagram and WhatsApp. However, the company’s stock price is hovering near all-time highs, so it could benefit from a split. Let’s find out more.
What is a stock split?
A stock split is when a company increases the number of outstanding shares while maintaining its market capitalization. This means that each existing shareholder will receive more shares, but their total investment remains the same.
To illustrate, let’s say you’re an investor who owns 10 shares of a company worth $100 each. If the company decides to implement his 2-for-1 stock split, your holdings will double to 20 shares and the stock price will be halved to $50 per share. It is important to emphasize that a stock split does not change the fundamental value of an investment. Instead, the number of shares you own will be adjusted. In this example, the investment amount was $1,000 before and after the stock split.
Why do companies split their stocks?
The high trading prices of shares of companies such as Meta Platforms may create a barrier to entry for certain investors. Fractional shares are easily accessible through many brokerage platforms, but notable exceptions like Vanguard do not offer this option. In theory, a lower stock price could increase accessibility and increase demand for a company’s stock, which could increase its market capitalization.
Tesla CEO Elon Musk has previously argued that lower stock prices can help companies both attract and retain talent, including through stock compensation packages and employee stock purchase plans.
Whether a company is included in a price-weighted index. Dow Jones Industrial Average, which is determined from the average of all companies’ stock prices, but can also be hampered by stock price increases. As a result, stocks with high stock prices, such as Meta, are less likely to be added because their stock prices can unfairly skew the index.
Meta has never split its stock.
Meta Platforms has never split its stock since going public in early 2012 at $38 per share. For investors who have held on to the stock ever since, the stock has given him an impressive return of 1,133%, outpacing the benchmark S&P 500’s total return of approximately 379%.
Notably, Meta founder and CEO Mark Zuckerberg had planned to split his stake in Facebook in 2016. This included creating a new class of stock with no public voting rights, which would have allowed Mr. Zuckerberg to maintain control of the company. He sold his shares to raise money for charity.
Mr. Zuckerberg withdrew that proposal in September 2017, saying, “Facebook’s business is strong, and the value of our stock allows us to fully fund philanthropy and maintain voting rights in Facebook for more than 20 years.” It has grown to such an extent.”
Should you buy Metaplatform ahead of a potential stock split?
Randi Zuckerberg is a former Facebook head of market development and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Collin Brantmeyer has held positions at Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Tesla. The Motley Fool has a disclosure policy.
