Stock split watch: Is stock reservation next?
Stock splits seem to have recently come back into favor. After sustaining four-digit stock prices for years, the two Alphabet and Amazon announced plans for 20-to-1 stock splits in the coming months. These moves will bring each share to a nominal price below $200 per share. It also makes them potentially eligible to be considered a Dow Jones Industrial Average Stock.
Although Reserve credits (BKNG -0.67% ) is not a likely choice for the Dow Jones, its price of around $2,000 per share also makes it a possible candidate for the split. The company’s management has not publicly proposed such a split. Nonetheless, the stock’s track record, along with a recovery in the travel sector, highlights some reasons why a potential split could give the travel stock an additional boost.
Holdings and stock splits
With a market cap of around $83 billion now, Booking hasn’t seen the stock appreciation of Alphabet or Amazon in the past two decades. However, the company (then known as Priceline.com) hit a pre-reverse split high of over $160 per share in April 1999. This pre-reverse split price would drop to around $1 per share d by the end of the following year.
The stock price eventually rebounded, but it sold at low single digits per share in the early 2000s. Finally, in June 2003, the company’s board passed a reverse stock split of 1 for 6, which moved the stock into the $25 per share range. From the 2010s, growth accelerated, and by early 2022 it would reach a price above $2,700 per share.
Now, after splitting Alphabet and Amazon, Booking will become the fourth most expensive stock on US exchanges behind Berkshire hathaway‘s A shares and two other shares. Not only does this render the 2003 reverse split unnecessary, but it could also have investors wondering if a decline in the share price would reinvigorate Booking stock.
Why Booking should consider a split now
Admittedly, a split does not change anything in terms of shareholder value. A $2,000 share is worth the same as 20 shares worth $100 each. Still, it could change some psychological outlook, especially for small investors. Although brokerages may sell partial shares, investors likely prefer the simplicity and accessibility of whole shares.
In addition, the additional interest could increase the volume of shares traded daily and the liquidity of those shares. Booking’s average daily volume of 580,000 is significantly higher than the average daily volume of around 1,900 for Berkshire Hathaway A shares. Yet it is well below the average daily volume of 5.4 million for B shares. of Berkshire and the average volume of 7.2 million for Airbnba travel industry counterpart with a similar market cap.
Investors should also consider the recent improvement in the company’s trading conditions. Booking’s 2021 revenue of just under $11 billion was up 61% from year-ago levels. Admittedly, it lags behind 2019 revenue of $15.1 billion. Additionally, net income of $1.2 billion in 2021 is only a small fraction of the $4.9 billion earned in 2019.
Still, CEO Glenn Fogel pointed to several recovery signals during the Q4 2021 earnings call. the prediction is confirmed.
Additionally, despite a current P/E ratio of 72, the company’s forward P/E ratio of 23 is comparable to Expediaof 24. This reasonable price-to-earnings ratio could attract investors given the company’s double-digit revenue growth.
Will Booking Holdings shares be split?
Booking Holdings management has not discussed a stock split, so investors should not assume a split is imminent. However, the forward P/E ratio indicates that the former Priceline is becoming a bargain. This suggests that Booking can beat the market over time, and a lower nominal price increases the chances of higher returns.
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