Source: PaxForex Premium Analytics Portal, Fundamental Insight
Meta Platforms, the parent company of Facebook and Instagram, is experiencing impressive growth, with its stock reaching all-time highs after a 91% increase over the past 52 weeks. Currently priced at $565 per share, this "Magnificent 7" stock raises the question: could a stock split be on the horizon?
To understand the potential for a stock split, it’s essential to grasp the basics. A stock split merely changes the number of shares representing a company's market value. For instance, 10 million shares at $100 each result in a market capitalization of $1 billion, while 100 million shares priced at $10 per share yield the same value. This process neither adds nor reduces value for existing shareholders.
However, stock splits aren’t without purpose. A lower share price can make a stock more accessible to smaller investors, particularly those without access to fractional shares. Moreover, stock options, which involve the right to buy or sell 100 shares at a predetermined price, are impacted by the share price. For example, an "in the money" call option for Meta stock is currently worth around $56,500 - an amount that could influence corporate policies tied to stock-based compensation.
Meta relies heavily on stock-based compensation, referred to as share-based compensation in its financial reports. In the first half of 2024, this amounted to $8.2 billion, or 17.5% of its total operating costs, up from 16.2% in the first half of 2023. Despite this, Meta has managed its stock price in a way that avoids driving up compensation expenses. Instead of issuing large stock option contracts, the company uses restricted stock units (RSUs), which convert into regular shares over time, maintaining a balanced wage structure without the need for a stock split.
Another potential factor for a split could be Meta’s inclusion in the Dow Jones Industrial Average (DJIA), a price-weighted index where higher-priced stocks have a greater influence. Meta’s current price would make it one of the most influential stocks in the index. However, with existing tech giants like Apple and Microsoft already present, adding another large tech player could shift the balance too heavily toward Silicon Valley.
Ultimately, a stock split for Meta seems unlikely in the near future. The company doesn’t need to lower its share price for compensation purposes, nor does it appear eager to join the Dow Jones index. While a split might offer a short-term boost in media attention or stock price, Meta's current trajectory suggests that such a move isn't necessary. After 14 years without a stock split, it seems unlikely that 2024 will be any different.
As long as the price remains above 530.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 568.00
- Take Profit 1: 580.00
- Take Profit 2: 595.00
Alternative scenario:
If the level of 530.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 530.00
- Take Profit 1: 510.00
- Take Profit 2: 485.00
