What Does Amazon's Stock Split Mean for Investors?
Amazon's stock will have a fair value estimate of $192 per share following 20-1 split.
Amazon.com (AMZN) is set to execute a 20-1 stock split, its first in more than two decades and the biggest in the company’s history, which will see investors receive an additional 19 shares for each one they already own.
The Amazon split is effective with the close of trading on June 3, which means the company's closing price on that day will be divided by 20 to accommodate for the increase in the number of shares. The stock will begin trading on the split-adjusted basis on June 6.
The split won’t affect Morningstar senior analyst Dan Romanoff’s view on the company, which he valued at $3,850 per share before the split. Following the split, Morningstar's fair value estimate for Amazon.com was also divided by 20, which would value the company at $192 per share.
As of June 1, the company was considered 37% undervalued. Morningstar considers Amazon to be a wide moat stock, which means it has a durable competitive advantage.
"Over the long term, we expect e-commerce to continue to take share from brick-and-mortar retailers," Romanoff says. "We further expect Amazon to gain share online. Critical growth drivers over the medium term will be AWS and advertising. Since these segments earn materially higher margins than the rest of the business, we also expect them to drive margins higher over time."
Amazon is one of several big-name tech and consumer companies planning to split its shares. Alphabet (GOOGL)/(GOOG), Google’s parent company, disclosed plans for a 20-1 stock split for both its Class A and C shares in February, which will take effect on July 15. Tesla (TSLA) is also planning to put another split to a shareholder vote during its annual meeting on Aug. 4. If that passes, it will be the electric vehicle maker’s second split in three years.
This article was updated to correct Amazon's fair value estimate to $192 per share from $192.50.
Jakir Hossain has a position in the following securities mentioned above: GOOG. Find out about Morningstar’s editorial policies.