Last summer, there was stock-split fever. Stock splits have value for a company because it becomes easier for investors to buy shares. Inevitably, stock prices rise after splits. You can't split your stock all the time, but the practice is a tool in a company's arsenal which they choose to use when it makes sense. Last summer, during the height of the bear market, it made sense for companies to try to boost interest in their stocks by making it more inviting to purchase them. Several companies with high price tags used that opportunity, and as expected, prices spiked afterward.
A year later, the initial jump is far in the past. But does that mean it's too late to buy? Amazon (AMZN 0.80%) and Shopify (SHOP -0.45%) are two companies that benefited from their stock splits. Let's see how they're doing today.
Amazon stock: Up 8% since its split
Amazon stock jumped after its split last year but subsequently fell back after disappointing investors. It's up 57% so far this year, but if you missed the chance to buy last summer, you haven't missed more than the initial price bump. Actually, Amazon stock is down 20% over the past three years, and now is the perfect opportunity to buy shares as they climb back up.
Amazon stock is climbing back up now because it's demonstrating strong progress in cutting costs and boosting profitability, all while generating higher sales at a better-than-expected pace. Sales increased 11% over last year in the 2023 second quarter, better than the 5% to 10% it guided for. Operating income grew from $3.3 billion to $7.7 billion, and net income was $6.7 billion, up from a $2 billion loss last year. Investors are anticipating that when the economy improves, Amazon's performance will be even better.
The most exciting things happening at Amazon are centered around generative artificial intelligence (AI). In contrast to some other trendy buzzwords that have generated interest in stocks in recent years, AI, and specifically generative AI, has real, practical value that helps businesses and could be game-changing. For example, Amazon recently introduced Bedrock, a foundational large-language model that allows developers to create all kinds of applications with simple prompts based on a huge data assortment already present in the model. This is a function for Amazon Web Services (AWS), the leading cloud-computing company, which is one of Amazon's highest-growing and most profitable segments.
Even now, Amazon is performing well, but it's the future potential that looks compelling for an investor, and it's far from too late to buy.
Shopify stock: Up 68% since its split
Shopify stock is up 60% this year, but it's down 45% over the past three years, so investors still have the chance to get ahead by buying the stock now.
Shopify is in a similar boat as Amazon. It built out when it dazzled small businesses looking to get online when physical stores shut down and revenue skyrocketed. However, it's been humbled as e-commerce hasn't obliterated physical shopping at all, and it no longer needs its tremendous infrastructure to meet the previous soaring demand. It recently sold off the logistics network it had acquired and developed to rope in expenses and concentrate on its core products, while maintaining a working partnership with the new owner. This looks like savvy strategizing, and the market has rewarded it with a lift in the stock price. In the meantime, it continues to post excellent growth in sales, with a 31% year-over-year increase in revenue and a 17% increase in gross merchandise volume. Operating loss was $1.6 billion, which included a $1.7 billion impairment charge related to the sale of the logistics business. Otherwise, operating income was positive. It also switched to positive free cash flow. In other words, it's tightening its belt, and it's producing results. This is what looks compelling to investors.
There's no sense in regretting not buying until now. I haven't recommended buying Shopify stock because it's just been too expensive. Even today it trades at a price-to-sales (P/S) ratio of 11, which is objectively high. Apparently, lots of investors believe that it deserves the premium valuation. However, Shopify stock has decreased from earlier highs this year as investor interest stabilizes and rebound hype dies down. If you see the opportunity ahead, you haven't missed out on the gains that Shopify can provide over time.
