Shares of Amazon (AMZN -3.75%) were up more than 2% in early trading Tuesday, defying the Nasdaq Composite index, which opened in negative territory and is down nearly 80 basis points as of this writing.
Sure, Amazon has been beaten down along with many other high-growth tech stocks that trade at high multiples of near-term earnings. Still, the stock's upcoming split, set to happen later this week, likely played a role in today's better-than-average action.
Last week, Amazon shareholders officially approved the company's 20-for-1 stock split, which was first announced back in early March. The split is set to take place on Friday, June 3.
Stock splits do not have any impact whatsoever on the value of the company; however, there is a case to be made that retail investors with lower-dollar accounts will gain more access to Amazon shares, which could improve liquidity and perhaps create more near-term demand for the stock. Therefore, it's possible there could be a short-term move higher as smaller investors scoop up more affordable shares once the split happens. However, that's far from a sure thing.
Still, given that Amazon has sold off mightily this year and is down nearly 30% year to date, investors may now think this a golden opportunity to buy more shares of this e-commerce and cloud computing leader. Therefore, it may not be surprising to see larger investors bid up shares this week ahead of the split, hoping for a near-term surge of buying Friday and into next week.
The move today came even as analysts at Jefferies lowered their price target on Amazon from $3,700 to $3,250 today. The reason for the price target clipping was a more pessimistic outlook for consumer discretionary spending this year. With consumers squeezed by inflation and looking for experiences over physical goods, it could be a difficult time for Amazon's e-commerce segment. Still, the firm kept its buy rating on Amazon shares, and the price target still amounts to a near-40% rise over today's share price.
Berkshire Hathaway CEO Warren Buffett is famous for saying that he has no idea what a stock will do tomorrow, next week, or the next year; when he buys, he buys for the long term, with a 10-year view and a focus on intrinsic value.
If you have a view that Amazon's e-commerce segment and Amazon Web Services cloud computing platform will continue their dominance for the next decade, and that these sectors will continue to grow and take share from physical retail and traditional IT, respectively, then Amazon sure looks attractive at these lower price levels, in this writer's opinion. If, however, you think e-commerce may be hitting a wall for penetration, or that competition may be gaining on Amazon in either e-commerce or cloud, then you may want to stay away.
Keep in mind, these factors have nothing to do with this week's stock split -- although the positive stock action is certainly a welcome development for shareholders who have had to endure this year's brutal sell-off.