Observing Stock Splits: Could ASML be Next?
Observing Stock Splits: Could ASML be Next?
Market splits have surged in recent times, with nearly every "Impressive Eight" stock splitting shares, alongside prominent names such as Shopify and Walmart.
Investors speculate about which stock could be the next to divide its shares. Stock splits do not enhance value or alter the fundamentals of a stock. They essentially divide the share cake into smaller slices, ensuring individual shareholders retain the same stake they previously held. Some research from Bank of America suggests that stocks tend to perform better post-split, although the reasons are unclear.
This could be due to companies selecting the optimal moment for their splits, usually from a position of strength, anticipating the stock to continue rising. Additionally, investors often interpret a split as a buying signal.
One potential candidate for a share split is ASML Holdings (ASML -1.98%). This Dutch semiconductor manufacturing equipment manufacturer currently trades at over $700 per share, positioning it as one of the most expensive stocks in terms of price per share.
Has ASML decided to split its stock? The company has a history of five splits, although none in the past decade, with two reverse splits tied to a special dividend and synthetic buyback. Management has not hinted at a potential split, a usual practice as companies rarely announce it until a decision has been made.
Reasons why ASML might split its stock
With its share price exceeding $700, ASML fits the profile of a potential stock split candidate.
A stock split can render the share price more affordable, attracting retail investors and employees wishing to purchase the stock.
Splitting the stock can also serve as a symbol of a company's growth, effectively resetting the share price to accommodate future expansion. Some investors may be expecting ASML to split its stock given that many competitors in the semiconductor industry have done the same, such as Nvidia, Super Micro Computer, and Broadcom.
Lastly, a stock split can be interpreted as a signal of management confidence in the stock's future upward trajectory.
Reasons why a split may not materialize
The primary reason ASML may delay a stock split is due to the company's recent challenges. Despite the market's record-breaking performance this year, ASML's stock has dropped year-to-date, and the business has faced difficulties.
The stock is currently 33% below its summer peak, and the company reduced its 2025 guidance while reporting decreased bookings in the third quarter, indicating slower-than-expected demand due to various challenges in the semiconductor equipment industry. Challenges include weakening demand from China, which accounted for nearly half of its revenue in 2021, expected to normalize to around 20% in 2022.
Furthermore, ASML only returned to year-over-year revenue growth this year, a sign of the company's ongoing struggles.
Given the stock's downturn, a split appears unlikely, as management would have announced it when the stock was higher if they thought it appropriate.
Will ASML enact a stock split?
Investors hoping for an ASML stock split will likely need to exercise patience. With the stock significantly off its peak and other factors negatively impacting its performance, a split may not be viable at the moment. However, these circumstances can change rapidly, especially if the stock recoups its losses and surpasses $1,000 again. Don't be surprised if stock split discussions resurface during such an event.
Investors might be interested in knowing if ASML may choose to invest its excess finances, considering the high price of its shares. With a share price over $700, a split could make the stock more accessible to a broader range of investors.
In light of these factors, some might argue that splitting the stock could demonstrate ASML's financial prowess and its belief in its future growth, potentially attracting more investors due to the lowered share price.