Investors Eye Netflix as Stock Split Speculation Grows

Stock splits tend to attract significant interest from investors, leading to increased trading activity shortly after they occur.

In recent years, major tech companies like Tesla, Nvidia, Broadcom, Amazon, Apple, and Alphabet have executed stock splits.

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Here’s what all investors should know about stock splits, and why Netflix (NASDAQ: NFLX) could consider a split in the near future.

Understanding Stock Splits

While it might sound technical, stock splits are straightforward. When a company announces a split, it provides a ratio. For instance, a 10-for-1 split results in ten times as many shares, with the stock price divided by ten.

Because both the share count and stock price change by the same factor, the company’s overall value, or market capitalization, remains unchanged.

Why Stock Splits Matter

After a split, the lower price per share often attracts more investors. This increased demand can push the stock price up, leading to a situation where buyers might pay more than before the split.

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Netflix and the Case for a Stock Split

This year, Netflix shares jumped by 86%, significantly outperforming both the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC). At a stock price of $904, it is nearing an all-time high.

NFLX data by YCharts.

In the chart included, you can see Netflix’s stock price history along with its past splits, indicated by purple circles. The last split occurred in July 2015, and since that time, the stock has increased over tenfold.

As shares inch closer to the $1,000 mark, potential buyers may be deterred by the high price, prompting thoughts of a split to make shares more accessible.

The current growth in Netflix’s valuation could encourage management to consider a stock split soon.

Regardless of Splits, Netflix Remains a Strong Choice

It’s vital to clarify that any speculation about a Netflix stock split is just that—speculation. A sensible rationale does not guarantee action.

While Netflix’s forward price-to-earnings ratio of 38 may not seem cheap, this premium could be justified. The company is expanding into live sports and developing new projects, such as Netflix House, to diversify beyond original content.

Whether or not a split happens, I see Netflix as a solid long-term investment opportunity.

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Suzanne Frey, an executive at Alphabet, serves on the board of The Motley Fool. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is also on the board. Adam Spatacco holds positions in Alphabet, Amazon, Apple, Nvidia, and Tesla. The Motley Fool holds positions in and recommends Alphabet, Amazon, Apple, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

The views expressed here are those of the author and do not necessarily represent the opinions of Nasdaq, Inc.