Why These Amazon Analysts Are Bullish Following 20-for-1 Stock Split Announcement

Amazon.com, Inc. (NASDAQ: AMZN) shares traded higher by 5% on Thursday after the company announced a 20-for-1 stock split and a new share buyback program.

What Happened? On Wednesday, Amazon said its board of directors has approved its first stock split since 1999 and authorized a $10-billion share buyback program.

Related Link: Is Amazon's Stock Overvalued Or Undervalued?

Why It's Important: Stock splits are generally seen as a positive by the market. Companies are often put in a position to split their stocks only after an extended period of strong returns. Once the price of a stock or fund gets too high, even single shares may become too expensive for small, retail investors, limiting demand for the stock.

In addition to ensuring access to all investors, a stock split is typically also an indication that management doesn’t see the current market value as overinflated, another bullish sign.

Bank of America analyst Justin Post said the stock split and buyback announcements are a signal that Amazon management is stepping in to help support the stock price, which was down 9% over the last year prior to the announcement.

"Today’s announcement underscores another positive benefit from a potentially more shareholder friendly stance from the new CEO, and we reiterate Amazon as our top FANG stock," Post said.

Bank of America has a Buy rating and $4,450 price target for Amazon.

Ivan Feinseth, chief investment officer for Tigress Financial Partners, said Amazon's buyback announcement marks a change in direction from its typical approach of reinvesting in its business.

"Amazon’s stock split announcement follows a similar 20-for-1 stock split announcement by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) in February as the high-priced tech stocks look to expand their retail shareholder base by making share ownership more accessible," Feinseth said.

AMZN Price Action: Amazon shares were trading 6.36% higher at $2,962.78 Thursday afternoon. 

Benzinga's Take: Even though stock splits don’t inherently increase the market cap of the stock or fund, the new price “seems” cheap to a market that is used to the pre-split price.

For all of the reasons mentioned above, multiple market studies have shown stocks that have split typically outperform the market following the split.

Photo courtesy of Amazon.