Walmart (NYSE:WMT) is the latest company to enact a stock split. Indeed, the retail giant announced on Jan. 30 that it will implement a 3-for-1 stock split, with new additional shares becoming payable after close of markets on Feb. 23 to holders of WMT stock as of the day prior. Walmart leadership says the decision to split its stock is in part to allow employees to purchase more shares.
“Given our growth and our plans for the future, we felt it was a good time to split the stock and encourage our associates to participate in the years to come,” noted CEO Doug McMillon in a statement.
Since the split won’t take effect until late February 2024, investors still have time to purchase WMT stock and take advantage of the move. Does that mean that shares will surge in the meantime as buying increases? Let’s take a closer look.
What’s Happening With WMT Stock?
After news of the upcoming stock split broke yesterday, shares of Walmart began trending upward, although trading has become volatile today. As of this writing, WMT stock is up just 0.4%. That said, shares closed out trading on Tuesday at $165.59 per share. This is just slightly below the all-time high price of $169.94 that WMT reached in November 2023.
When a company enacts a stock split, it’s typically to lower the share price in order to enable new investors to buy in. Many companies who opt for splits trade at extremely high levels. During the summer of 2022, for example, seven prominent companies split their stocks, including three members of the “Magnificent 7.”
As Fast Company reports, citing Amazon’s (NASDAQ:AMZN) split in 2022:
“Usually, a company splits its stock when its stock price reaches a level that makes it look too expensive on a psychological level for retail investors to buy even one share. For example, Amazon’s stock price was nearly $3,000 per share when it did a 20-for-1 stock split in 2022. That meant even if a retail investor had $2,000 to invest, they couldn’t buy a single share of AMZN before the split.”
It makes sense for a company trading at almost $3,000 per share to split its stock. But since Walmart is trading at significantly lower levels, its decision to split may strike some as odd. And despite McMillon’s claims about wanting to offer Walmart employees the chance to invest, the company may have other motives, especially as Walmart has discounted workers’ rights in the past. Splitting its stock is more likely a strategy to boost share prices in the short term, regardless of who does the buying.
What Comes Next?
Ultimately, WMT stock is only likely to see a short-term boost over the next month as investors take advantage of the upcoming stock split. Since it is only a 3-for-1 deal, though, some investors may not have the incentive to make big bets, if any.
When shares start trading on a post-split basis after Feb. 26, they should adjust and continue trading at normal levels. Investors shouldn’t expect this development to spur any major growth, although it likely won’t harm share prices either.
On the date of publication, Samuel O’Brient did not hold (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.
