Should you buy Amazon stock now or wait until after the stock split?

The e-commerce giant will be splitting its shares 20-for-1, pending shareholder approval.

| More on:
a man smiles widely as he opens a large brown box and examines the contents in his home.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) announced a 20-for-1 stock split after the market closed on March 9. Typically, a split announcement draws a lot of attention to a stock and Amazon is no exception. 

Despite recent loss-taking by the broad market, Amazon's shares were up more than 6% on the day following the announcement. That said, a pending split should not be the sole reason investors buy or sell a stock.

Let's look at some of the details of the announcement and, more importantly, at Amazon's business prospects to determine if investors should buy its stock before the split.

Amazon announces 20-for-1 stock split 

While Amazon announced the 20-for-1 stock split on March 9, the move will not take effect immediately. Management still needs to gain shareholder approval on a vote slated for May 25. If approved, Amazon will trade on a split-adjusted basis on June 6.  

Note, however, that the change will not increase or decrease shareholder ownership. You will not suddenly own 20 times more of Amazon's business than before the split. Instead, your current ownership will be sliced more thinly. In the end, shareholders are left with the same magnitude of ownership, split into more pieces. 

Amazon's business prospects 

Digging into Amazon's business prospects, investors may find it more exciting than the news of the split. The company has increased revenue from $61 billion in 2012 to $479 billion in 2021. The explosive revenue growth has flowed to operating income, which increased from $676 million to $24.9 billion in that same time.

Amazon has evolved through the years, starting from a tiny bookseller to an e-commerce giant and now much more. Indeed, its more profitable Amazon Web Services segment has grown to an annual revenue run rate of $71 billion as of its quarter ended December 2021. What's more, Amazon generated over $30 billion in advertising revenue in the trailing 12 months.

It has all crescendoed in excellent shareholder returns and earnings-per-share (EPS) growth. In the last decade, Amazon has compounded earnings per share at a rate of 47.1%. Similarly impressive, its share price has increased by more than 1,500% over that period.

Amazon's stock price valuation 

Fortunately for potential investors, Amazon has been selling at its lowest price-to-earnings (P/E) ratio in the past five years. The market is concerned about how the economic reopening will affect sales and customer retention at Amazon in the near term. As a result, Amazon is trading at a P/E of 45, down from its peak of over 240 reached in 2018.

Before or after a stock split, Amazon is an excellent stock to buy for long-term investors. Better yet, to minimize the impact from trading activity surrounding the stock split, investors can split their purchase in two, buying half of their allocation before and half after the June 6 inflection point. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns Amazon. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A young entrepreneur boy catching money at his desk, indicating growth in the ASX share price or dividends
International Stock News

Why this high-flying investor is selling Tesla shares and buying this US tech stock instead

Ark Invest funds have been selling the electric vehicle maker's stock over the last few weeks and reinvesting the proceeds…

Read more »

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
International Stock News

Is Nvidia stock heading to $175?

The bulls are lining up ahead of Nvidia's earnings report next week.

Read more »

A woman holds a bitcoin token in her hand as she smiles at the camera in the background.
International Stock News

Bitcoin keeps soaring. Could it hit $95,000 this week?

Could the current crypto rally have enough juice to push the coin above that once-inconceivable level?

Read more »

A boy in a green shirt holds up his hands in front of a screen full of question marks.
International Stock News

2 reasons to buy Nvidia shares before November 20 (and 1 reason to wait)

This top AI stock has soared nearly 200% this year!

Read more »

A group of friends push their van up the road on an Australian road.
International Stock News

Why Tesla stock just pulled back

Tesla finally hit a speed bump after a blistering post-election rally.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
International Stock News

Why Tesla stock keeps going up

Tesla stock costs more than $1 trillion now. Is that too expensive?

Read more »

A businessman in soft-focus holds two fingers in the air in the foreground of the shot as he stands smiling in the background against a clear sky.
International Stock News

2 Numbers I'll be looking for on November 20 when Nvidia reports earnings

While many analysts and investors will be looking at revenue and profit growth, two other figures are more important to…

Read more »

A man wearing a blue jumper and a hat looks at his laptop with a distressed and fearful look on his face.
International Stock News

Magnificent Seven: Unstoppable tech stock giants or risky buys?

Did you know the "Magnificent Seven" moniker was meant as a warning, not an endorsement? Check out the risks and…

Read more »