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Alphabet Stock Split Positive, Could Spark Others: Bank of America

Since 1980, S&P 500 companies that have split their shares have outperformed the index over the next 12 months.
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Alphabet’s  (GOOGL) - Get Free Report 20-for-1 stock split, declared last week, is a positive for the tech giant and could push other companies to do the same, Bank of America says.

The Mountain View, Calif., technology titan’s shares are currently the most expensive on the Nasdaq, trading at $2,777, the Bank of America Research Investment Committee, led by Jared Woodard, wrote in a commentary. 

That means the shares would trade at about $139 after the split.

Since 1980, S&P 500 companies that have split their shares have significantly outperformed the index three, six, and 12 months after the initial announcement, according to Bloomberg data cited by Bank of America. 

Stocks that split gained 25% on average over the next 12 months, versus 9% gains for the index.

“Some of the outperformance is likely due to momentum,” the report said. “Companies that announce splits have likely seen sustained market outperformance and expect that outperformance to continue.”

The company’s underlying strength is a primary driver of elevated prices, it said. “Once the split is executed, investors who have wanted to gain or increase exposure may start to rush for the chance to buy.”

In Alphabet’s case, the stock has climbed 32% over the past year, beating the Nasdaq Composite, which barely changed during that period. To be sure, Alphabet hasn’t completely escaped the recent drop in tech stocks, slipping 5% year to date.

Stock splits have been rare recently: just 28 in the past five years, compared with the peak of 346 between 1996 and 2000, Bank of America notes.

But, “Google's recent 20-for-1 announcement may attract attention from other companies and spark a wave, drawing more investor flows into the market,” the bank said.