What Does Shopify’s Stock Split Mean for Investors?
The e-commerce company’s shares will have a fair value estimate of $45 following the planned 10-1 split.
Shopify SHOP is set to initiate a stock split that will see investors will receive an additional 10 shares each one they already own. It will be the company’s first stock split since it went public in May 2015.
The Canadian e-commerce platform’s stock split was announced in April and approved by shareholders during their annual meeting earlier this month. It will take effect on June 28.
Shopify’s Stock Split and What It Means
The split won’t affect Morningstar senior equity analyst Dan Romanoff’s view on the company, which he values at $450 per share. After the split, the company’s fair value estimate will be adjusted to $45 per share to accommodate for the 10-fold increase in Shopify’s outstanding share count.
``It almost doesn't make sense to split,'' Romanoff says.
That means the company will remain as a 4-star rated stock post-split, trading at a discount of 27% as of June 21. The company’s current fair value estimate was slashed after a lackluster first quarter.
``Although we remain bullish on e-commerce over the long-term, the near-term outlook for Shopify remains uncertain as we search for a new normal for e-commerce in a post-Covid world,'' Romanoff says. ``Combined with modest revisions to our long-term growth estimates and meaningfully lower profitability assumptions throughout our forecast, we are cutting our fair value estimate to $450 per share from $730.''
Shopify's narrow moat Morningstar Economic Moat Rating, meaning the company has a competitive advantage, will also not be impacted by the split.
Upcoming Stock Splits
Shopify is one of several tech and consumer companies planning to split its shares. Google's parent company Alphabet GOOGL GOOG is planning a 20-1 split for both its Class A and C shares effective July 15. Tesla TSLA has filed a proposal for a 3-1 split that will be voted on at its annual meeting on August 4. If passed it will be the electric vehicle maker's second stock split in three years.