20:1 stock split and a $1 billion buyback!!! What’s not to like about $AMZN? – March 9, 2022
AMZN BRKA
Amazon ( NASDAQ: AMZN ), you can see what happened after hours. They announced a 20- for-1 stock split. Wow! You get 20 shares if you own 1 now. And they are also buying back a billion dollars worth of shares. Okay, fine. Do you know what? That stuff happens all the time; I hate to tell you but there isn’t anything special about this, and I mean it.
This is not 1998 or 1999 where stock splits were all the deal. They were a huge rage. Cisco ( NASDAQ: CSCO ) splitting their stock, 2-for-1, buy them now. QUALCOMM ( NASDAQ: QCOM ) 4-for-1, buy it now, you’re a rich person right off the bat. But this is not that, it is a different market.
And also, the thing about Amazon ( NASDAQ: AMZN ) stock is, not too many people can afford a big chunk of Berkshire Hathaway A ( VIE: BRKA ), it’s almost $500,000.00 per share. Amazon ( NASDAQ: AMZN ), not quite so much, but still, how many retail traders, in other words, bag holders, how many retail traders are going to get really emotional about this?
Hey, guess what? If I buy 1 share now if I spend $3000.00 on 1 share of stock, what do I get? I get 20 shares at $150.00, that’s pretty cool. So suddenly I own 20 shares of Amazon ( NASDAQ: AMZN ). Fantastic, Amazon ( NASDAQ: AMZN ) is buying back a billion dollars worth of stock.
The chart sucks in every way. Oh, it’s forming a base here, great. Good luck holding that stock as long as you want and maybe will break out to an all-time high. But this is the thing, Amazon ( NASDAQ: AMZN ) has been trading sideways, had been trading sideways for almost a half of a year. And then once it’s broken down here it’s been trading sideways in a lower range for 2 months.
All the splits and buybacks in the world are not going to save this stock. This stock has been dead money, from a trading perspective, it’s been dead money forever. I know some of you will say that’s a bunch of BS because I have been buying Amazon ( NASDAQ: AMZN ) on the dips and I made a gob of money up here. Well fine, I’m not talking to you, but also, you are not talking to me.
That’s a channel trade; that’s a trade where you see the support and resistance, it’s sideways, not trending, it’s sideways. You are buying low, selling high, and it’s a great way to trade. But if you are an investor and you have just been investing in Amazon ( NASDAQ: AMZN ), this has been dead money for quite a while and all the while other stocks have been screaming.
What I am telling you now is, this is a shiny object. They are blowing smoke out there, telling you that a 20-for-1 split is awesome. Guess what a 20-for-1 split does? A 20-for-1 split increases the liquidity of the stock by a factor of 20. Right now we have shares in the float of four hundred thirty-seven million six hundred.
So let’s do the math on that, 437,000,000 (we will forget about the 600) x 20, so now we’ve got 8,740,000,000 shares in the float. What are you going to do with that? It makes the stock infinitely easier to buy. And the only reason why the stock would not be lower right now is that it might be a little tough to buy, maybe there is a little supply issue.
And so here’s the thing, and this is kind of a rule of mine, only typically I apply it to uptrending stocks rather than crappy stocks like this. If a stock is moving higher and then the company splits the stock you say, oh, okay cool.
Now, I have kind of a litmus test to see what’s really making this stock go higher. If the stock is going higher simply because it’s difficult to buy, there are just not that many shares around, it’s a low float so it’s hard for institutions to own a lot of stock without really, really driving the price up, then that split is going to solve that problem. If it has only been moving up because of a low float, then when you increase the float the stock should fall. The stock should drift lower, that is just a function of math meeting reality.
On the other hand, if the stock is trending nicely, the company splits the stock, it might dip down a little bit but then it ultimately runs up to new highs. That is telling you that there is more to the company than the illiquidity of the stock. And so, when a company splits its stock, it’s an uptrending stock, it splits the stock and then it continues to go higher, that’s a stock that you want to buy.
Here, you can see what happened, a big move higher, massive volume, all the bag holders came in. The stock fell 140 points after this knucklehead move, 140 points. And so this stock could very well go up tomorrow but I seriously doubt it’s going to breakthrough. I don’t think a billion-dollar buyback of shares that are crap and a 20-for-1 split is going to cure this horrible ceiling and now a lower range here, I just don’t.
All I am saying is this, if you want to day trade Amazon ( NASDAQ: AMZN ) or something like that, fine. But seriously, don’t be fooled into thinking that this changes things for Amazon ( NASDAQ: AMZN ) because it doesn’t. I think I have beaten this dead horse enough. Don’t think that the game has changed just because of a split, that is not the way it works these days.
If you want to own Amazon ( NASDAQ: AMZN ) I am not telling you not to, go ahead and own this thing, fine, fantastic. What I am saying is, don’t own it just because of the billion buybacks and the stock split, it’s not enough.
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