Visa Inc. (NYSE:V) will go from the stock with the highest sticker price in the Dow Jones Industrial Average to the middle of the pack after its 4-for-1 stock split. But if it draws more small investors into Visa stock, it can’t hurt.
On the face of it, stock splits are silly. The underlying fundamentals of the business stay exactly the same. A stock split is the same thing as making change. A 4-for-1 stock split is no different than getting four $5 bills in exchange for a $20.
That said, stock splits do appear good for market psychology. A a greater number of cheaper shares improves liquidity and possible demand. A smaller investor might not feel comfortable spending $200 on a single share of stock, but $50 is a different matter. That’s why, when companies split their stocks, shares usually get a short-term boost on the news.
Heck, Visa jumped more than 5% on a day when the Dow fell by more than triple digits, and that was only partially because of its better-than-expected quarterly profit.
Visa stock went public at $44 seven years ago and hasn’t looked back. Today it trades at $260-and-change. Breaking up V shares so they go for something closer to the IPO price isn’t a bad idea. No, it doesn’t change anything important, but it does improve the optics.
Apple Inc. (NASDAQ:AAPL) is a great example of this. Before its 7-for-1 split, a single share in Apple went for almost $700. Today an investor can become an Apple shareholder for just $120.
Stock Split Candidates
As much as Visa stock is a good choice for a stock split, it’s hardly the best. There are plenty of more popular stocks with much higher face prices.
The most obvious example is probably Priceline Group Inc (NASDAQ:PCLN). The online travel company’s stock goes for $1,020. But PCLN has been in a downtrend since March 2014, when it topped out at about $1,400. A stock split might be just the catalyst PCLN needs to arrest the slide.
Google Inc (NASDAQ:GOOGL, NASDAQ:GOOG) is another stock lots of investors would like to see split … again. Even after last year’s split into different classes, a single share in GOOGL still costs more than $500.
Another market darling the little guy would like to see split is Chipotle Mexican Grill, Inc. (NYSE:CMG), which is at more than $700 per share these days. Heck, many of the market’s hottest, most popular names look due for splits. Netflix, Inc. (NASDAQ:NFLX) shares are running at about $440, while Amazon.com, Inc. (NASDAQ:AMZN) goes for $350. Even LinkedIn (NASDAQ:LNKD) — at $225 — is out of the reach of many smaller investors.
There are no indications that any of these stocks are going to split anytime soon, and that has its benefits too. Splitting a stock into a big pile of more accessible shares is an invitation for volatility.
No, nothing about Visa’s business has changed, but at least a stock split will let more investors participate in its success.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
