GME Stock Split: Shareholders Approve Proposal of Stock Split in Annual Meeting
Similar has been action over the last one month and share price touched a low of $81 on 11th May, only to make a high of $137 a fortnight later on 27th May.
Notably, Amazon Inc also underwent a stock split in the ratio of 20:1 on 3rd June 2022. Each shareholder on record as of 27th May 2022, will get 19 additional shares by 3rd June 2022. The trading is expected to begin on a split-adjusted basis from June 6th, 2022. This will bring down the share price from $2447 (as of 4.6.2022) to roughly $122. On May 25th, shareholders approved the amendment to increase the number of outstanding shares proportionately as filed by Amazon Inc in Form 8-K.
More importantly, Amazon’s share price is down by about 28.60 in the last six months after announcing the stock split. Similar is the fate of GME stock which is down by about 20.00 in the same period.
In this article we will talk about the GME stock split, its perceived impact on share price, and the possibility of a future split in due course of the future.
GME Stock Split: Facts about GME Stock Split
On 21st April 2022, GameStop filed a proxy statement with the US Securities and Exchange Commission consisting of five proposals on which voting would take place in the shareholders’ annual meeting on 2nd June 2022. The proposals included the election of six directors, adopting GameStop Corp 2022 incentive plan, provide a non-binding vote on the compensation of executive officers. The fifth proposal in the proxy statement states to approve the decision to provide discretionary power to the board of directors to initiate a stock split till the next shareholders meet without the separate permission of shareholders.
The fifth proposal also included the decision to increase the approved share count from the existing 30 million to 1 billion for the same stock split.
So, the fact remains that GameStop stock is not split as of today and is not going to split in immediate future. In the annual shareholders’ meet, only the decision to increase the share count has been approved and the board of directors is given the power to initiate the stock split as and when required. Whenever directors decide to split the stock, it will not be delayed as separate shareholders’ meetings will not be required for this specific purpose. Even the ratio of a stock split is not mentioned in the proxy statement and is neither discussed in the shareholders’ meeting.
But, the decision to increase the share count from 30 million to 1 billion does give a hint that it will be around 3:1 as and when directors initiate the split.
Also Read: TTD Stock Split
GME Stock Split: Reasons for Stock Split for GameStop
As generally portrayed, the stock split is initiated to make the stock more accessible to small retail investors. While the fact remains that a stock split does not technically add value to the company and its market capitalization. It is similar to having either a large Pizza or having it in form of ten small pieces, it is no different.
But still, companies do initiate the stock splits to attract the retail investors, for those who are on verge of investing but hesitates due to higher share price. In a number of instances, a stock split does provide a short-term bullish push to the share price post-stock split and it seldom turns the stock into a downtrend on the positive side for a short period of time.
In the proxy statement, GameStop management states that they are proposing a stock split to reward the investors for their loyalty, instead of giving dividends. The company also feels that an increased share count is necessary for the future growth of the company and provides flexibility for corporate needs which may arise in the future.
GME Stock Split: Latest Video
GME Stock Split: Impact of Stock Split on Share Price
The impact of this GME stock split is highly uncertain on the share price. While, it is generally seen that a stock split announcement does provide a short-term bullish push, the result may be different for GameStop. The company has a devoted investors’ community on Reddit but they are not showing encouraging signs post announcement of the stock split. The stock is down by 20% in the last six months pertaining to the bearish global sentiments and fears arising due to the increased inflation rate. The company announced the proposal of a stock split in the month of April 2022 and since then the stock has not performed as per expectations.
However, it needs to be kept in mind that only the proposal of the stock split is approved by shareholders and the stock split has not been announced yet. It will be interesting to observe stock price post announcement of the stock split and its effective date. It should provide a short-term bullish push to the share price, but global sentiments should turn bullish for the same.
Another factor to consider for the impact on share price is quarter financial results. On June 1, 2022, GameStop came with first-quarter results and it reported a loss of $2.08 per share compared to a loss of only 45 cents YoY. Also, net sales stood at $1.38 billion in the quarter, up only 8% YoY, but it is above the consensus estimate of $1.33 billion. The mixed reaction post announcing the stock split proposal is due to disappointing quarterly results.
The management is expected to go with a stock split in the next 12 months and a major factor that will decide its impact on share price will be the financial results announced for upcoming quarters. Also, the global sentiments must turn positive for the perceived good impact of a stock split.
GME Stock Split: Does Stock Split makes GME Stock a Buy?
In all probability, GME stock will go for a 3:1 stock split in the next 12 months. But the stock split in itself does not make a stock a buy. In the longer run, only the company’s fundamentals drive the price up or down. Today, GameStop has dedicated followers on Reddit and other social platforms but it will turn upside down in case of bad financial performance.
A GME stock split will bring down the share price below $100 and it is bound to attract a new set of investors but global sentiments and financial performance need to be on the same page for the share price to go up beyond the stock split. GameStop has the potential to go up or down by more than 20% in a single day and risky investors may opt to add it just after the announcement of the stock split to earn some quick bucks.
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