Is Alphabet (GOOG) a Good Buy Since Its Stock Split?
Google parent company Alphabet’s 20-for-1 stock split was completed July 18. The split effect at market close on July 15 and started trading at the new price today — following the announcement in February.
Bloomberg reported that Alphabet was the most-purchased stock on Fidelity’s platform on July 18, with its ticker seeing notable interest on Reddit’s WallStreetBets platform. However, shares of Alphabet were down 0.2% mid-day July 18 and are down 23% year-to-date.
The split — which is an increase in the number of shares — will enable more investors to afford to invest in Alphabet and may broaden the company’s audience and reach. Angelo Zino, CFRA Research equity analyst wrote in a report sent to GOBankingRates that the split “could help improve liquidity and potentially drive GOOG’s inclusion into the price-weighted Dow 30 index.”
CFRA Research has a “Buy” opinion on the stock, reflecting their “view of valuation versus large cap tech peers, free cash flow potential and belief GOOG can sustain a mid-teen annual revenue growth pace.” CFRA had downgraded the stock from a “Strong Buy” on April 27, following first quarter earnings.
Zino wrote that there are risks ahead, however, including macro, geopolitical, competitive and legal.
“Near term, we see pressures from higher operating expenses/capital spending, but we like growth prospects tied to rising enterprise budgets, new YouTube experiences (e.g., Shorts and live shopping), and share gain in the cloud,” Zino added.
Meanwhile, other analysts also cite the ongoing macro headwinds, which could affect second quarter earnings, set to be released July 22.
Monness Crespi Hardt analyst Brian White reduced his estimates and price target for the stock, saying that the “weakening of the global economy and the challenging geopolitical backdrop could hurt digital ad spending this year,” according to TipRanks.
“In this environment, we believe cloud spending will also be held hostage to a more challenging environment, albeit still growing at a respectable rate. As such, we are lowering our estimates on Alphabet,” he said. White gave a “Buy” recommendation but reduced the price target to $145, according to Tipranks.
Alphabet joined the likes of Amazon, which split its stock in June, Shopify announced one in April and Tesla in late March. And on July 6, meme stock darling GameStop announced its board of directors approved the four-for-one stock split the company had announced on March 31.
According to Bank of America analysts, “since 1980, S&P 500 companies that announced stock splits significantly outperformed the index 3, 6 and 12 months after the initial announcement.” Said analysts added that “stocks that have split on average gained 25% over the next twelve months, versus 9% gains for the broad index,” Seeking Alpha reported.
BofA analysts further noted that some of the stated outperformance is likely due to momentum.
“Companies that announce splits have likely seen sustained market outperformance and expect that outperformance to continue,” they added, according to Seeking Alpha. “Underlying strength in the company is a primary driver of elevated prices. Once the split is executed, investors who have wanted to gain or increase exposure may start to rush for the chance to buy.”
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