The market was ripe with stock splits last year, with some of the world's biggest companies launching these operations -- from Google parent Alphabet to electric vehicle giant Tesla. Stock splits lower the price of each individual share by offering additional shares to current holders. This way, they don't decrease the overall market value of the company.
It's a win-win situation: A split makes buying the stock easier for a wider range of investors -- and it offers the company and current shareholders a new opportunity for share price growth. A stock split itself doesn't spur gains, so, alone, it isn't a reason to buy a particular stock. But it does suggest that company has been doing well as its share price rose to high levels in the past.
And that means it's a great idea to take a closer look at companies that have split their stock in recent times. Some could make good buys moving forward. In fact, one of last year's stock-split companies makes a particularly good buy right now. Let's find out more.
Hit by higher inflation in two ways
Which company am I talking about? E-commerce and cloud computing powerhouse, Amazon (AMZN 3.43%). The market giant went through turbulent times last year as higher inflation hit it in two ways -- increasing Amazon's costs and reducing its customers' buying power. Amazon even reported its first annual loss in almost a decade, and the company's share performance stumbled too.
AMZN Net Income (Annual) data by YCharts
This year, though, Amazon showed investors it's able to handle the toughest of environments and turn things around pretty quickly. The company improved its cost structure through cutting jobs, boosting efficiency, and investing in high growth areas. This should serve Amazon well in any economic setting.
But why should we buy the stock right now? Amazon's e-commerce business is benefiting -- and set to benefit -- from the most important selling days of the year: the original Prime Day in July will contribute to third quarter earnings, and the company's newer Prime Day event this month -- called Prime Big Deal Days -- as well as Black Friday and holiday sales will contribute to fourth quarter earnings.
Numbers from the October Prime event are starting to roll in and offer reason for optimism. In fact, considering the difficult economic context, a couple of statistics are worth noting. About 85% of shoppers say the deal event was their main reason for shopping, according to research firm Numerator. And in the case of 45% of purchases, shoppers had been waiting for those items to go on sale. So, shoppers this year may be particularly interested in buying during Amazon's special sales periods.
Though the October event hasn't delivered as much revenue as the July one in the past, this week's event may be set to grow in comparison to last October's Prime sale. The average order size this time around was slightly higher than that of last October, Numerator data show.
Offering earnings a lift
All of this could offer Amazon's earnings a lift at an important time. The company has started demonstrating clear signs of recovery in the past couple of earnings reports. For example, last quarter Amazon reported a doubling of operating income, a shift to net income from a loss, and a switch to an inflow of cash from an outflow.
A boost from sales events such as Prime Days and eventually Black Friday could add to this positive momentum -- and that may serve as a catalyst for the stock.
Now, let's talk a bit about stock price. The shares have climbed more than 55% so far this year, leaving them trading for 61 times forward earnings estimates. This isn't a shockingly high level for a growth stock with leadership in the trillion-dollar e-commerce market and the billion-dollar cloud computing market. And it's lower than Amazon's valuation in the past when the company's cost structure and fulfillment network weren't as strong as they are today.
All of this means now is a great time to buy this stock-split player -- or hold onto it if you're already a shareholder -- as we could soon see more and more rewards from Amazon's recovery efforts and outstanding Prime sales events.
