Tick-tock. The hours are counting down until Amazon.com (AMZN -1.01%) conducts a highly anticipated 20-for-1 stock split. Amazon expects that its stock will begin trading at a much lower price beginning on Monday, June 6, 2022.
Many investors hope that the move will spark a significant jump in the beaten-down internet stock. Should you rush to buy Amazon before its stock split?
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Why hurry?
On one hand, there's absolutely no reason to be in a hurry to buy Amazon stock. After all, stock splits don't change anything fundamental about the company's business. They're like cutting a pizza into multiple slices. You still have the same amount of pizza.
However, if you think that Amazon's share price will take off next week after its stock split, buying before the catalyst makes sense. And there are reasons to expect that surge could indeed happen.
Amazon has been a sought-after stock for years. But its share price has topped $1,000 since late 2017. This steep price has prevented many retail investors from buying the stock. Even with Amazon's shares down well over 30% from the 52-week high, the stock remains beyond the reach of many of these investors.
The upcoming 20-for-1 stock split will make Amazon more affordable for retail investors than it's been in a long time. It wouldn't be surprising if there's significant pent-up demand for the stock.
If history is any guide, Amazon's share price will soar after its stock split. In each of the company's three previous stock splits, the stock has jumped at least 48% within the next few weeks following the split.
Different dynamics
Despite this impressive track record, investors shouldn't automatically assume that Amazon's shares will take off after the stock splits. The dynamics for the company and the overall stock market are much different now than they were during Amazon's previous splits.
Amazon was obviously a much smaller company back in 1998 and 1999 when it conducted the first three stock splits and had the wind at its back. Today, though, Amazon faces some headwinds. In particular, the company has excess capacity in its fulfillment and transportation network. This will negatively impact Amazon in 2022.
Perhaps even more importantly, the stock market is in a much different place now than it was during Amazon's previous stock splits. Those occurred during the heady dot-com boom. Investors flocked to any internet stock.
Now, though, the Nasdaq Composite Index remains stuck in a bear market. Growth stocks such as Amazon are out of favor. There's no guarantee that Amazon's stock split will cause investors to shake off their concerns.
Buy Amazon -- but no rush needed
In part because of these different dynamics, I don't think that investors need to rush to buy Amazon before its stock split. However, I nonetheless believe that Amazon is a great stock to buy.
My Motley Fool colleague Daniel Foelber recently laid out an intriguing case that Amazon is actually a value stock in some ways. His argument was that Amazon Web Services (AWS) is worth more than $1 trillion by itself. Based on this premise, you can get Amazon's e-commerce business practically for free by buying the stock at its current discounted valuation.
I don't think you have to agree with this argument to view Amazon as a solid stock to buy. AWS truly is a growth machine. E-commerce penetration rates remain low, giving Amazon plenty of room to expand its market. The company also has significant other growth opportunities in healthcare, self-driving car technology, and providing its "Just Walk Out" checkout technology to brick-and-mortar retailers.
The clock is certainly ticking before Amazon conducts its stock split. The good news is that Amazon is a smart pick to buy whether you do it now or wait until after the share price is much more affordable next week.
