Stock splits appear to have recently come back into favor. After supporting four-figure stock prices for years, both Alphabet and Amazon have announced plans for 20-for-1 stock splits in the coming months. These moves will take each stock to a nominal price of under $200 per share. It also potentially makes them eligible for consideration as a Dow Jones Industrial Average stock.
Although Booking Holdings (BKNG 1.02%) is not a likely choice for the Dow, its approximate $2,000 per share price makes it a possible split candidate as well. The company's management has not publicly proposed such a split. Nonetheless, the stock's history, as well a recovery in the travel sector, highlight some reasons why a possible split may offer an added boost to the travel stock.
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Booking Holdings and stock splits
At a market cap of approximately $83 billion now, Booking did not experience the stock appreciation of either Alphabet or Amazon over the past two decades. However, the company (then known as Priceline.com) reached a pre-reverse split high of over $160 per share in April 1999. That pre-reverse split price would fall to about $1 per share by the end of the following year.
The stock price eventually bounced back, but it sold in the single digits per share through the early part of the 2000s. Finally, in June 2003, the company's board passed a 1-for-6 reverse stock split, which lifted the stock into the $25 per share range. Beginning in the 2010s, growth accelerated, and by early 2022 it would reach a price exceeding $2,700 per share.
Now, after Alphabet and Amazon split, Booking will become the fourth highest-price stock on U.S. exchanges behind Berkshire Hathaway's A shares and two other stocks. Not only does this make the 2003 reverse split seem unnecessary, but it also could cause investors to wonder whether a lower stock price would reinvigorate Booking stock.
Why Booking should consider a split now
Admittedly, a split changes nothing in terms of shareholder value. One share at $2,000 carries the same value as 20 shares worth $100 each. Still, it could change some psychological perspectives, particularly for small investors. Although brokerages can sell partial shares, investors likely prefer the simplicity and accessibility of whole shares.
Also, the added interest could increase the volume of shares traded on a daily basis and the liquidity of those shares. Booking's 580,000 average daily share volume is considerably above the approximate 1,900 average daily volume for Berkshire Hathaway A shares. Still, it is well below the 5.4 million average daily volume for Berkshire's B shares and the 7.2 million average volume for Airbnb, a travel industry counterpart with a similar market cap.
Investors should also consider the recent improvement in business conditions for the company. Booking's 2021 revenue of just under $11 billion rose 61% from year-ago levels. Admittedly, it lags the 2019 revenue figure of $15.1 billion. Also, 2021 net income of $1.2 billion is a small fraction of the $4.9 billion earned in 2019.
Still, CEO Glenn Fogel pointed to multiple recovery signals on the fourth-quarter 2021 earnings call. Indeed, the $16.1 billion in consensus revenue for 2022 would signify a full recovery and a considerable growth rate if the prediction holds.
Moreover, despite a current P/E ratio of 72, the company's 23 forward P/E ratio is comparable to Expedia's forward multiple of 24. That reasonable forward P/E ratio could attract investors given the company's double-digit percentage revenue growth.
Will Booking Holdings stock split?
The management of Booking Holdings has not discussed a stock split, so investors should not assume a split is forthcoming. However, the forward P/E ratio indicates that the former Priceline is becoming a bargain stock. This suggests Booking can beat the market over time, and a lower nominal stock price increases the odds of higher returns.
