Were you surprised last month when you heard about Alphabets’ 20 for 1 Split? It’s only the second time in the history of Google’s parent company that they are splitting their stock. Therefore, it’s big news. But what does it mean. Should you invest in Alphabet before the stock split? It might be a great investment, although the split isn’t necessarily the reason why. Let’s explore that further.
What Is a Stock Split?
If you’re not familiar with the term then you might wonder what Alphabets’ 20 for 1 Split is. A stock split occurs when a company decides to split its stocks into smaller pieces. The total amount stays the same. However, the individual value of each stock goes down, because there are more stocks making up the same price.
Motley Fool uses the example of a pizza to help illustrate this. A company has a 10″ pizza it sells for $10. If it divides that pizza into 10 slices, then each slice costs $1. However, if it divides that pizza into 20 slices, then each slice costs fifty cents. The slices are smaller and cheaper. However, the total pizza costs the same thing. A stock split creates more slices at a lower price point.
Alphabets’ 20 for 1 Split
Alphabet, best known as Google’s parent company, has continued to do well in recent years. As a result, stock shares have gone up considerably. In fact, motley Fool reports that they climbed:
- 65% in 2021 alone
- 266% over the past five years
- 927% over the past decade
As a result, stocks are up to about $3000 per share. That’s pricy for the average investor. As a result, you might feel like you can’t afford to invest in the company, even though the continued growth makes it seem like a potentially good investment.
Alphabets’ 20 for 1 Split changes the game. One share cost about $3000. However, once split into twenty “pizza slices,” each share will only cost about $150. As a result, you might feel inclined to invest in Alphabet because it’s more affordable.
When Will Alphabet’s 20 for 1 Split Take Place?
The company announced the split last month after the company’s board of directors had agreed to it. However, shareholders still have to approve. That shouldn’t be a problem, however. Expectations are that the shareholders will approve this move. If they do so then all shareholders of record will receive 19 additional shares of stock for each share that they own after the close of business on July 15, 2022. In other words, if you have 1 stock right now, then you’ll have 20 on that date. Of course, as explained with the pizza analogy, the actual value you own will be the same.
Should You Invest Before Alphabet’s 20 for 1 Split?
The pending stock split itself doesn’t give you any particular reason to invest, or not invest, in Alphabets’ stock. As explained, you’ll have the same value of stock after the split as you do before. Motley Fool explains that investors often drive up share prices right before a stock split because of excitement about the change. However, the changes are temporary and won’t likely affect the value of your long-term investment in the company.
Should You Invest After Alphabet’s 20 for 1 Split?
If you haven’t felt like you could afford to invest in the company, then Alphabet’s 20 for 1 Split could be good news for you. After all, perhaps you haven’t wanted to buy a single share of the stock for $3000. However, once you have the option to purchase stocks at a lower rate, you might want to do so. After all, the company’s value seems to continue rising. Therefore, it’s generally considered a solid investment. If you don’t have $3000 to invest, but you do have $1500, then you could purchase ten shares of the stock after the split. This would allow you to invest what you can afford in the company.
5 Reasons to Invest in Google Stocks
So, the split isn’t a good reason in and of itself to invest in the stocks. However, there are plenty of good reasons to consider this investment. Here are five of them:
1. Diversity of Successful Products
Motley Fool points out that Google has nine different products with over one billion users each. Obviously, you probably use Google for Search. You also like use Google Chrome when doing your online searches, Google Maps to get around, Gmail for your email needs, and YouTube to watch videos. The other successful Google products are Android, Drive, Photos, and the Google Play Store. Moreover, they’re always trying new things. You never know where they might hit it big again. As a result, they’re a wise stock investment.
2. Strong Q4 2021
Of course, you want to look at both short-term and long-term gains with a company as you consider your investments. Google has that really strong history as outlined with the 1, 5, and 10 year numbers above. However, they also have good short-term growth, as evidenced by their Q4 2021 report. In fact, it was in announcing the results of that report earlier this year that they made the announcement about Alphabet’s 20 for 1 Split.
3. Digital Advertising Is Poised for Continued Growth
Digital ads aren’t going away any time soon. In fact, they are poised to keep growing. And Google has a huge market share despite increased competition. They have well over one quarter of the entire market of digital advertising. So, if you’re looking at companies for investment, they certainly give you a good reason to keep them in mind.
4. Google Cloud Is Growing
Amazon Web Services and Microsoft’s Azure remain in the top two positions in terms of the cloud. However, Google Cloud is right behind them at a close third. This just goes to show that there are so many different reasons to expect the company to not only do well but to continue to grow in value in the years to come.
5. All-Time Highs Doesn’t Mean Peaking
NASDAQ blog argues that even though the stock is close to setting all-time highs in terms of value, investors shouldn’t worry. That’s because despite those big numbers, they product that the stock isn’t anywhere close to its ultimate valuation peak. They note that after the stock split a few of the things that could happen include continued cash generation, at least one company acquisition, and potential stock buybacks. So, whether you but the stock before or after the split isn’t really the point; just buy it.
Read More:
- What Do You Know About FANG Stocks?
- The Pros and Cons of Investing in Stocks
- Trading Stocks: What to Know Before You Jump in
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Kathryn Vercillo is a professional writer who loves to live a balanced life. She appreciates a good work-life balance. She enjoys balance in her relationships and has worked hard to learn how to balance her finances to allow for a balanced life overall. Although she’s only blonde some of the time, she’s always striving for total balance. She’s excited to share what she’s learned with you and to discover more together along the way.
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