Nike Stock Split: A Stock Split After 13% Fall 1 day?

Nike Stock Split: A Stock Split After 13% Fall 1 day?
Nike Stock Split: More importantly, can we expect a share split soon for Nike Inc shares in the wake of these regular downfalls.

September 30th 2022 was not a good day for being Nike Inc investor. The share price fell about 13% in a single day on the backdrop of not so good quarterly results for the quarter ended August 31st 2022 The results were declared after the market hours of Thursday, September 29th 2022. The retail investors are already concerned about fall in overall US market due to high interest rates fears by Fed and a possible impending recession. Results of the prominent companies like Nike Inc just provides a stronger hint towards the same.

Nike Inc did beat the consensus estimates both for the top and bottom-line growth. It reported a revenue of $12.7 billion, 4% increase YoY and ahead of Wall Street’s average estimate of $12.3 billion. Similarly, non – GAAP adjusted earnings were $0.93 per share, which is just tickle over consensus estimate of $0.92, but was 20% down YoY.

But despite giving seemingly good results, Nike shares fell 13% in a single session. In this article, we will discuss about what lies ahead for Nike shares. More importantly, can we expect a share split soon for Nike Inc shares in the wake of these regular downfalls.

Nike Stock Split: History of Nike Inc Stock Split

The image below shows the history of Nike Inc stock split. It is better to understand the past splits and understand the pattern.

Nike stock split

Nike Stock Split: Inferences from the stock split-

Nike stock split

All Nike Stock split are in the ratio -2:1 – Nike Inc had seven splits in the history of its trading on NYSE. It debuted way back in year 1982 at split adjusted price of $0.38. Management decided to split the stock seven times and on all the occasions the ratio was 2:1. It means that a shareholder would get one extra share as dividend after effective date and the share price will get almost half. In other words, a shareholder will have 128 shares for each share it held before 1983, considering only share splits into account.

$100 and above behaved as benchmark for split – A company generally follows a mindset for declaring dividend and stock splits. Nike Inc management has never allowed share price to cross $150 before 2021. The first split in 1983 was at minimal price of $26 and $62 in 1990, and then after all the five splits were done around $100-130. For example, the share price before the splits in four occasions were $114, $121.12, $106.43 and $105.60 for split for the year 1995, 1996, 2007 and 2012 respectively. It definitely indicates that $100 is considered as a benchmark by the management to initiate the split. $100 is also a psychological mark beyond which investors do feel that stock is a bit expensive and hence management has been right on the money by declaring the split as and when the share price has gone beyond $100. In year 2015 only, share price was above $130 and it got adjusted to around $62 post-split.

Splits were effective in giving short-term bullish push- It is to be kept in mind that split does not have any impact on the company in purely technical terms. The market cap pre- and post-split remains the same. It just multiplies the share count and divides the share price in the ratio of the split. In case of Nike Inc, the share count is doubled and price was slashed to half just because of split, otherwise the market cap of Nike Inc did not change due to split. But Nike Inc has done seven splits in the history, just to create the psychological impact on the investors that Nike stocks are not expensive and they can grab the shares.

But all the splits have been successful in giving short term bullish push. The only motive a company has in announcing the share split is that it will make the share more reachable to retail investors, which in turn will give the share price a short-term bullish push. For Nike Inc, splits have done wonders for share price. For example, the price which was slashed to half in October 1990, attained the same price in only two years by October 1992. Split in year 1995 was exceptional for the company as split adjusted price doubled in less than one year to attain the same price and forcing the management to announce another split in 1996. It is definitely due to strong performance by the company on the financial front, but stock split has done its part.

The splits are more evenly paced over the last three decades- When we talk about stock splits, there are mainly two time zones in which maximum splits have happened, one in late 1990s and then another one in last one and half years. It may be because, these both were very bullish period, one before dot com bubble and then another one after pandemic. For example, Amazon Inc had three splits in late 1990s and then after wait of more than two decades, it announced 20:1 stock split in 2022. But with Nike Inc, it has more evenly paced its splits over the decades which makes it more investor friendly.

Is Another Stock Split Coming After 7 years?

Nike Inc last stock split was in December 2015. It has been almost seven years since the last split. The million-dollar question is when is next stock split coming? But I believe that it is more important to ask whether the split is really required at this point. The share price is trading at $85 as on October 3rd 2022, which is way below than the benchmark of $100, at which past splits were initiated.

Also, it is to be noted that share prices crossed $150 twice in last one year, one in August 2021 and then in November 2021, before starting the reverse journey and Nike Inc did not announce the splits back then and therefore it dwindles the probability of announcing stock split any time soon in the near future.

But here are few things I would like to highlight for the Nike Inc. Firstly, it has been giving an increasing dividends year over year. The last drawn dividend was $0.305. The dividend yield for the stock is 1.43%. In addition to it, it has a history of bouncing back strongly after correcting 40 to 50%. The current pessimism with Nike shares is the ripple effect of bad phase of overall US economy. The correction of 13% in a single day is due to fact that Nike Inc reported an increased inventory and decreasing profit margin for first quarter and probably for the second quarter also. But it is a fundamentally strong company and these issues are only transitory.

Investors looking for good value stocks should keep Nike Inc in a close watch, and must not wait for another split.

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-Vineet Agarwal

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