- Amazon and Tesla shares have fallen sharply in recent months.
- Proposed share splits have the potential to act as solid growth drivers for the two troubled stocks.
- The underlying businesses of Amazon and Tesla are the main drivers of both stocks in the long run.
oh That’s probably the best – and most concise – summary of what’s happening to shareholders in Amazon.com (WKN: 906866, -1.40%) and Tesla (WKN: A1CX3T, -0.87%) is currently underway.
Amazon stock has fallen nearly 40% from its highest level in 52 weeks. Tesla is not doing so badly, but it is still down almost 30% from last fall’s high.
Some investors may be tempted to throw in the towel with the previous high-flyers. Others, on the other hand, may mark certain dates in their calendars in hopes of a short-term recovery. With their upcoming stock splits, will Amazon and Tesla stocks return?
Behind the falls
To appreciate the potential for a comeback, one must first understand why it is necessary in the first place. There are at least a few common denominators behind the fall of these two well-known stocks.
A significant move away from growth stocks began in the fourth quarter of 2021. Both Amazon and Tesla noticed this trend. Initially, Tesla fell more than Amazon. Investors’ concerns about rising interest rates and inflation have also weighed on both stocks. However, there are also unique factors that caused the two stocks to slip.
Amazon shares plunged after the company reported its worst quarterly results for years on April 28th. The Internet giant’s large net loss was on an investment in the electric car manufacturer Rivian attributed. But investors were also disappointed with Amazon’s sluggish growth in e-commerce.
Meanwhile, Tesla reported amazing Q1 results on April 20th. However, the company also warned of ongoing problems in the supply chain. Even worse, investors were not thrilled with the prospect of Tesla CEO Elon Musk Twitter takes over.
Stock splits as a rescue?
The planned share splits announced by Amazon and Tesla do not change the dynamics described above. Investors can still avoid growth stocks. Interest rates will almost certainly continue to rise. Inflation is likely to remain high. The unique factors responsible for the decline in inventories will not be affected.
Still, do not rule out the possibility that buying Amazon and Tesla at much lower prices will not attract many investors. On June 6, Amazon shares will be split 20: 1. We do not yet know what Tesla’s split relationship will look like.
Both shares have performed well after previous share splits. Amazon has already completed three stock splits in the past. The company’s shares have risen by at least 48% in the weeks following each split. Tesla completed a 1: 5 share split on August 31, 2020. Although stocks initially fell, they rose sharply, with Tesla rising more than 40% over the next four months.
There is no guarantee that both stocks will produce similar results in their next split. There is also no guarantee as to when Tesla will split its shares. The timing of the share split is in jeopardy after the company missed a statutory deadline to file a power of attorney.
I agree 100% with the statement that is often attributed to the physicist Niels Bohr: “It is very difficult to make predictions, especially about the future.” However, I have three predictions to throw out the window.
First, despite the late submission of the power of attorney statement, I think Tesla will actually move forward with a share split. I expect the company to make a stock split of 10 to 1 sometime this year.
Second, I predict that both Amazon and Tesla will post the least modest gains after their respective stock splits. But given the uncertain macro environment, I do not want to speculate on how long these recoveries will last.
Third, I predict that in ten years (and probably much earlier) most investors will have forgotten the current crisis affecting both stocks and their stock divisions in 2022. The real driving force for both Amazon and Tesla is their long-term business prospects. Despite the current downturn, I see these prospects as good for both companies.
Article Will Amazon and Tesla return with their stock splits on the way? first appeared on The Motley Fool Germany.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fools’ board of directors. This article was written by Keith Speights and was published on Fool.com on 5/8/2022. It has been translated so that our German readers can participate in the discussion. Keith Speights holds positions in Amazon. The Motley Fool owns shares in and recommends Amazon, Tesla and Twitter.
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