A stock split after a 13% 1-day drop?

Nike Stock Split: More importantly, can we expect a stock split soon for Nike Inc shares following these steady falls.

September 30e 2022 hasn’t been a good day to be an investor in Nike Inc. The stock price fell around 13% in a single day amid not-so-good quarterly results for the quarter ended August 31st 2022 Results were announced after market hours on Thursday, September 29e 2022. Retail investors are already worried about the fall of the entire US market due to fears of high interest rates from the Fed and a possible impending recession. The results of leading companies like Nike Inc only give a stronger hint in the same direction.

Nike Inc beat consensus estimates for both revenue and net income growth. It reported revenue of $12.7 billion, up 4% year-on-year and above Wall Street’s average estimate of $12.3 billion. Similarly, non-GAAP adjusted earnings were $0.93 per share, which is just slightly above the consensus estimate of $0.92, but was down 20% year on year.

But despite seemingly strong results, Nike shares fell 13% in a single session. In this article, we will discuss what lies ahead for Nike stocks. More importantly, can we expect a stock split soon for Nike Inc shares following these steady falls.

Nike stock split: History of Nike Inc Stock Split

The image below shows the history of Nike Inc. stock split. It is best to understand the past splits and understand the pattern.

Nike stock split: Inferences from stock split-

Nike stock split

All fractional Nike shares are in the ratio -2:1- Nike Inc has had seven splits in its trading history on NYSE. It debuted in 1982 at the split adjusted price of $0.38. Management decided to split the shares seven times and on all occasions the ratio was 2:1. This means that a shareholder would receive an additional share as a dividend after the effective date and the share price would get almost half of that. In other words, a shareholder will have 128 shares for each share he held before 1983, taking into account only stock splits.

$100+ behaved as benchmark for split – A company usually follows a mindset to declare dividends and stock splits. Nike Inc management never allowed the stock price to cross $150 until 2021. The first split in 1983 was at the minimum price of $26 and $62 in 1990, then after all five splits were completed around $100-130. For example, the stock price before the splits on four occasions was $114, $121.12, $106.43 and $105.60 for the split for the years 1995, 1996, 2007 and 2012 respectively. This definitely indicates that $100 is considered a benchmark by management to initiate the split. $100 is also a psychological mark beyond which investors believe the stock is a bit pricey and hence management was right in declaring the split as the stock price has exceeded $100. In 2015 alone, the stock price was above $130 and it was adjusted to around $62 after the split.

Splits have been effective in giving a short-term bullish push It should be borne in mind that the split has no impact on the company on a purely technical level. The market capitalization before and after the split remains the same. It simply multiplies the number of shares and divides the price of the share in the ratio of the split. In the case of Nike Inc, the number of shares is doubled and the price has been halved simply because of the split, otherwise the market capitalization of Nike Inc has not changed due to the split. But Nike Inc has done seven splits in history just to create the psychological impact on investors that Nike shares are cheap and they can grab the stock.

But all of the splits managed to give a short-term bullish push. The only motive a company has in announcing the stock split is that it will make the stock more accessible to retail investors, which will give the stock price a short-term bullish push. For Nike Inc, the splits have done wonders for the stock price. For example, the price that was halved in October 1990, reached the same price in just two years in October 1992. The 1995 year split was exceptional for the company because the split adjusted price doubled less one year to reach the same price. and forcing management to announce another split in 1996. This was certainly due to the company’s good performance financially, but the stock split did its part.

Splits are more regular over the past three decades- When we talk about stock splits, there are mainly two time zones in which maximum splits have occurred, one in the late 1990s and then another in the last year and a half. This may be because both of these periods were very bullish, one before the dotcom bubble and then another after the pandemic. For example, Amazon Inc had three splits in the late 1990s, then after waiting more than two decades announced a 20:1 stock split in 2022. But with Nike Inc, it paced its splits on a more regular basis over the decades, which makes it more favorable to investors.

Is another stock split coming after 7 years?

The last Nike Inc stock split took place in December 2015. It has been almost seven years since the last split. The million dollar question is when will the next stock split take place? But I believe it is more important to ask whether the split is really necessary at this point. The stock price is trading at $85 as of October 3rd 2022, which is well below the $100 benchmark, at which past splits were initiated.

Also, it should be noted that stock prices have crossed $150 twice in the past year, once in August 2021 and then November 2021, before beginning the reverse journey and Nike Inc has not announced the splits. at the time and therefore this lessens the likelihood of announcing the stock split anytime soon in the near future.

But here are a few things I would like to point out for Nike Inc. First, it has given increasing dividends year after year. The last dividend drawn was $0.305. The stock’s dividend yield is 1.43%. On top of that, it has a habit of bouncing back hard after correcting 40-50%. The current pessimism towards Nike stocks is the ripple effect of the bad phase of the US economy as a whole. The 13% single-day correction is due to Nike Inc reporting higher inventory and lower profit margin for Q1 and likely Q2 as well. But it’s a fundamentally sound company and these issues are only transitory.

Investors looking for good value stocks should watch Nike Inc closely and not wait for another spin-off.

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-Vineet Agarwal

Note: Crowdwisdom360 gathers forecasts and data from all over the net and has no internal views on likely stock or cryptocurrency trends. Please consult a registered investment advisor to guide you in your financial decisions.


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