Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) announced a stock split of 20-for-1 along with its earnings report. GOOG stock has been increasing in value since the announcement, and it’s still a hot topic of conversation.
Understandably, the choice to split the stock makes the share price more affordable. However, before you invest in GOOGL stock, it’s important to understand this particular stock split. Although Alphabet might seem like a no-brainer, it is important to pick your spots.
Since it is one of the priciest stocks in Silicon Valley, not everyone can afford to purchase GOOG stock. Therefore, retail investors do not have access to one of the best businesses in America.
Speculation is also rampant that the split could involve Alphabet trying to join the Dow Jones Industrial Average; at this point, Alphabet is too expensive to join the gauge.
The Dow has been around since 1896 and has been an important benchmark for investors since then. The index is widely followed as a barometer for the U.S. economy and financial markets. Therefore, getting added to the index is a big deal.
Overall, GOOG stock is a rock-solid performer. In the run-up to the stock split, shares of the company are expected to rise. Hence, much like is the case at most times, it’s a great time to invest in the stock.
Best Way to Play GOOG Stock
When a company is doing well and its stock price is increasing, it might decide to split the shares so that more shares are in circulation.
A stock split can be beneficial to shareholders. It can increase the number of shares they own and potentially increase their profit. However, it can also have negative consequences, such as making the stock price drop and making it harder for investors to sell their shares.
Stock splits often reduce volatility for investors and make the shares more affordable for new investors.
On the eve of their stock splits, the titans of tech all gained in anticipation. This will be a pattern we’ve seen countless times before, with companies like Apple (NASDAQ:AAPL) and other notable companies like Tesla (NASDAQ:TSLA) and Nvidia (NASDAQ:NVDA). Therefore, you can expect much the same with GOOG stock.
In this case, you could buy the stock before the split — paying north of $2,800 a share — or wait for it to drop after the split is over. Then, you’ll be able to purchase it cheaply and then profit from its price decline.
Whirring on All Cylinders
Alphabet Inc. is the parent company that runs Google, Google Cloud and other business services. Its biggest division is called Google Services, as it owns ad monetization, Android, Chrome – and so on. Alphabet also has an Other Bets group that includes hardware and investments in other ventures/companies.
At this point, Alphabet is one of the best tech companies out there. According to data compiled by CNBC, the company has beat analyst estimates each time in the last seven quarters, an enviable record.
Alphabet has excelled in recent earnings, reporting record revenue and astounding year-over-year performance. There has been a resurgence in digital advertising spending, with revenues jumping to over $257 billion in the last fiscal year. Operating income has also been at record levels, growing by 91% to finish the year at $78.7 billion.
Google has still seen its share price decline slightly over the past year. But that is mainly because of the overall market. Since the start of this year, many tech stocks have taken a big hit, with multi-billions lost in terms of market value.
However, Google is repurchasing shares from shareholders to help their stock price rise again. It rewards investors handsomely through share repurchases. Alphabet bought a total of $50.3 billion in stock back in the year, an uptick of 62% in the year-ago period. The company was able to do since it’s a cash flow-generating machine.
Share repurchases are one of the best possible options a company has when they want to demonstrate how much they care about their shareholders and attract new investors. Even the most critical shareholders will admit that it’s one of the best levers management can pull.
Strong Fundamentals Mean the GOOG Stock Split Won’t Matter Much
GOOG stock has become synonymous with the internet, as the once-eponymous “Google” has become a verb. The company has remained at the forefront of technology with its innovations, vast reach and moon shots.
With services such as YouTube, Gmail, Google Maps and so much more, Google is one of the first companies a person would think to mention when asked which company they want to be in charge of their marketing.
Therefore, when investing in GOOG stock, it is a matter of when not if you should invest. Considering the history of share splits and their effect on the stock price, it’s a great time to invest in this one.
In addition, once the split occurs, retail investors will get a better entry point to this great business. It will help it gain momentum among a dynamic investor class who will find shares too expensive right now.
On the publication date, Faizan Farooque 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.
