Alphabet (GOOGL -0.15%) (GOOG -0.08%) turned heads back in February when it announced a 20-for-1 stock split, just the second in the company's storied history and the first time the company has pared its share size in eight years.
The stock has been dragged lower by the ongoing bear market, losing as much as 30% of its value since highs reached late last year. Over the past several days, however, investors have snapping up shares near their 52-week lows in advance of the stock split, which is scheduled to take effect after the market close on Friday, July 15.
This could be the last chance for investors to purchase the stock before the split -- but should they?
Arguments to buy pre-split
The most often-cited reason to buy shares before a stock split is the potential that investors will bid up the share price in advance of the split. History shows that there may be something to that argument, as investor psychology has provided splitting stocks with surprising momentum in the days and weeks heading into a split. Indeed, so far this week, Alphabet stock is up more than 5%.
While that could be the result of investors bidding up shares ahead of the stock split, in the increasingly volatile market, it's equally likely that the fits and spurts are the result of normal market movements. In fact, Alphabet stock is still down roughly 21% so far this year, which might be reason enough for investors to buy shares, which would in turn drive the stock higher.
In the short term at least, stock splits tend to pique the interest of investors, which in turn sometimes drives the share price higher.
Reasons to wait until after the split
That said, the new lower price post-split may attract some buyers who were unwilling or unable to buy Alphabet stock, with its share price hovering near $2,300. Indeed, after the split, the stock price will be closer to $115, making it much more affordable to those with limited funds. Many brokers offer investors the option to purchase fractional shares, which affords the opportunity to own the stock even if you can't afford a full share. Unfortunately, this isn't universally available, leaving some investors out in the cold.
While the share price will be lower in price post-split, it won't actually be any cheaper. Sure, the stock may cost less, but it also represents a smaller ownership percentage of the company. For example, the earnings per share reported each quarter will also be divided by 20 post-split, commensurate with the change in the number of shares.
Still, the new lower price may attract more individual investors. If so, the resulting price bump won't happen until after the stock split is complete, which suggests investors can still benefit by waiting.
Before or after?
There are still plenty of catalysts to drive Alphabet's stock higher in the years to come. Google's search dominance is well documented, with a 92% share of the global search market. As a result, Alphabet controls 28% of the worldwide digital advertising market. Also, Google Cloud is the third-largest and fastest-growing cloud provider.
This wide array of businesses fuels Alphabet's robust financial results, with first-quarter revenue of $685 billion, which grew 23% year over year, while its operating income -- which excludes its volatile equity interests -- climbed 22%.
Pulling back to take a broader view, Alphabet stock has rewarded investors with gains of 4,470% since its IPO in 2004 -- even after the recent bear market slump. The company is much more mature than it was when it debuted 18 years ago, so it's highly unlikely investors will experience gains in excess of 4,000% over the next couple of decades.
That said, Alphabet has a long runway of growth ahead, so investors should focus on the company's market dominance, strong execution, and ongoing potential rather than the vagary of a stock split. That means it doesn't matter very much whether you buy Alphabet stock now or wait until after the stock split -- just so long as you buy it.