Last month, Amazon (NASDAQ:AMZN) announced a stock split just days before the market bottomed. From there, AMZN stock rode the market’s momentum higher, climbing more than 20% in the process. However, since then, it has also rode the market’s recent momentum lower. Amid the decline, there have been increasing worries about unionization within the company. Amazon’s Staten Island workers recently formed the first U.S. union in Amazon’s 28-year history. This poses a risk to Amazon’s current employment model as we wait to see if the Staten Island victory influences others to follow suit. Just last year alone, Amazon spent $4.3 million on anti-union consultants nationwide.
As of last year, the company employed just over 1.6 million full-time and part-time employees worldwide. So the impact of a union could have a notable impact on Amazon, which is one of the largest employers in the nation. Will a stock split be enough to offset these worries? Potentially.
Amazon will split its stock 20-for-1 on Jun. 3. However, a stock split doesn’t change the value of the company. It is a simple arithmetic move to increase its share count and decrease the stock price. When sentiment is bullish and the trend is working in bulls’ favor, a stock split can have a big positive psychological impact. Remember, whether a stock goes up or down is a game of supply and demand. The higher demand is, the higher the stock goes. If the stock split helps demand, it has the potential to help the stock price.
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In reality, stock splits seem to have the biggest impact during bull runs and the least impact during bear markets. Down 25% from its peak at the time it was announced, Amazon’s stock split certainly could have come at a more opportune time.
While some may argue that AMZN stock went on a 27.8% low-to-high rally, I would point out that that was likely fueled more by the near-17% rally in the Nasdaq.
All in all though, the stock split is a net positive for Amazon. It is just a matter of “when” the stock starts trading better, not “if.” Presently, the threat of further unionization seems limited, but it is something worth keeping an eye on until the trend favors the bulls.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
