It’s Not in the “Magnificent Seven.”)
Stock splits generally attract a lot of attention from the investment community.In fact, stocks that have undergone a split show increased levels of trading activity immediately after the event.
In recent years, several high-profile tech companies, including Tesla, Nvidia:, Broadcom:, Amazon:, Apple:and: The alphabet were subjected to stock splits.
Here’s what investors need to know about stock splits, and why I think so Netflix: (NASDAQ: NFLX) may become a candidate for an early distribution of its shares.
A stock split sounds complicated, but rest assured that the mechanics behind a split are easy to understand.
When a company announces its plan to split its stock, it will also have an important ratio with investors. by the ratio, while the stock price has been reduced with the same 10 factors.
Since the number of shares outstanding and the share price change by the same factor, the business’s valuation (ie, market capitalization) remains unchanged.
Investors often perceive a lower stock price after a split, which is why stocks tend to see more demand after a split, resulting in the stock price continuing to rise.
Ironically, this means that many investors may actually pay for the stock at a higher valuation than when the stock was trading before the split took effect.
Netflix shares are up 86% in 2024, nearly tripling the reported earnings. S&P 500: (SNPINDEX: ^GSPC) and: Nasdaq Composite: (NASDAQINDEX: ^IXIC). As I write this, the stock price is hitting an all-time high of $904.
NFLX: data according to YCharts:.
In the chart above, I’ve illustrated the entire history of Netflix’s stock price, and I’ve charted it with the company’s stock split history.
The last split was in July 2015. Since then, the stock has risen more than tenfold.
With the stock hovering around $1,000 and the momentum currently looking unstoppable, I wouldn’t be surprised if some investors look for alternatives in the media and entertainment space given Netflix’s expensive nature.
To me, the recent expansion in Netflix stock valuation, as seen above, may deter investors from buying the stock, so I wouldn’t be surprised to see management opt for a stock split in the near term.
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