What happened
On its first trading day post-stock split, shares of internet retail giant Amazon (AMZN 1.30%) got a lift, rising 2.4% through 3 p.m. ET.
You can probably thank Wall Street for that.
Image source: Getty Images.
So what
With Amazon making the curious decision to split its stock 20 for 1 in March, and that split having finally taken effect today, all investor eyes were on how Wall Street would react to the new share price, and what new price targets analysts would assign to the stock at its new price.
As Street Insider reports, the first analyst to put out a report (and a target price) on Amazon post-split was MKM Partners, and MKM is sticking pretty close to its pre-split target price of $3,625 per share (now divided by 20). To be precise, MKM now values Amazon shares at $180 apiece, only a tiny bit below where it had the stock valued previously -- and that bit seems to be due to the analyst thinking investors may have crowded into Amazon before the split in hopes of profiting from other investors buying the stock after the split, once the stock began looking more affordable. (Now that the stock split has happened, that catalyst has gone away.)
Separately, investment banker Stifel put out a new $190 price target on Amazon shares, reports The Fly, which effectively maintains the banker's pre-split valuation of $3,800, unchanged.
Now what
Both MKM and Stifel (and I) agree that the stock split is essentially a non-event that doesn't change the company's valuation one bit. To put it in pastry terms, splitting a stock doesn't change the size of the corporate pie, but only how many slices it's sliced up into.
That's the good news. The bad news is that, because stock splits don't change anything other than the number of shares a company is divided into, they don't change the fact that Amazon stock still costs 52 times earnings post-split, just like they cost 52 times earnings pre-split -- but the stock is only expected to grow those earnings at about 27% annually over the next five years. That gives Amazon stock a PEG ratio of about 2 (or twice what value investors ordinarily consider a "fair price").
Put another way: Any way you slice it, Amazon stock still costs too much.
