Ugh. That's probably the best -- and most succinct -- summary of how things are going these days for Amazon.com (AMZN -1.40%) and Tesla (TSLA -0.87%) shareholders.
Amazon stock is almost 40% below its 52-week high. Tesla isn't in quite as bad shape but remains down close to 30% from the peak last fall.
Some investors could be tempted to throw in the towel on the once highfliers. Others, though, could be circling specific dates on the calendar in hopes of a near-term rebound. Will Amazon and Tesla stocks bounce back with their upcoming stock splits?
Image source: Getty Images.
Behind the declines
Any evaluation of the potential for a comeback needs to first start with gaining an understanding of why it's even needed. There are at least a couple of common denominators behind the declines of both of these high-visibility stocks.
A distinct shift away from growth stocks began in the fourth quarter of 2021. Amazon and Tesla each felt the sting of this trend. Initially, Tesla fell more sharply than Amazon did. Investors' concerns about rising interest rates and inflation have also weighed on both stocks. However, there are also unique factors causing the two stocks to slide.
Amazon's shares crashed after the company posted its worst quarterly results in years on April 28. The internet giant's big net loss was due to an investment in electric vehicle maker Rivian. But investors were also disappointed with Amazon's sluggish e-commerce growth.
Meanwhile, Tesla reported monster Q1 results on April 20. However, the company also warned about continuing supply chain headwinds. Perhaps more importantly, investors didn't seem thrilled about the prospects of Tesla CEO Elon Musk acquiring Twitter.
Stock splits to the rescue?
The planned stock splits announced by Amazon and Tesla don't change anything about any of the dynamics mentioned above. Investors could still shun growth stocks. Interest rates will almost certainly continue to rise. Inflation will probably remain at high levels. The unique factors behind the stocks' declines won't be impacted.
However, don't discount the possibility that the opportunity to buy Amazon and Tesla at much lower prices won't entice many investors to do so. Amazon's stock will split 20-for-1 on June 6. We don't know yet what the split ratio will be for Tesla.
Both stocks have performed well after previous stock splits. Amazon has conducted three stock splits in the past. Its shares skyrocketed at least 48% in the subsequent weeks following each split. Tesla conducted a 5-for-1 stock split on Aug. 31, 2020. Although shares fell at first, they rebounded strongly with Tesla up more than 40% over the next four months.
There's no guarantee that either stock will experience similar results with their next split splits. Actually, there isn't a guarantee about when Tesla will split its stock. The timing of the stock split is in jeopardy after the company missed a regulatory deadline for a proxy statement filing.
Three predictions
I agree 100% with the statement often attributed to physicist Neils Bohr that "prediction is very difficult, especially about the future." However, I'll step out on a limb with three predictions.
First, I think that Tesla will indeed move forward with a stock split despite its delayed proxy statement submission. My prediction is that the company will conduct a 10-for-1 stock split at some point later this year.
Second, I predict that both Amazon and Tesla will enjoy at least modest bumps following their respective stock splits. Because of the uncertain macroeconomic environment, though, I won't speculate on how long those rebounds will last.
Third, I predict that 10 years from now (and probably much sooner), most investors will have forgotten about the current malaise affecting both stocks and their 2022 stock splits. The real driving force (no pun intended) for both Amazon and Tesla is their long-term business prospects. Despite the present downturns, my view is that those prospects look good for both companies.
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Will Amazon and Tesla Bounce Back With Their Upcoming Stock Splits? - The Motley Fool
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