You’ll see what appears to be a huge decline in Broadcom‘s (NASDAQ: AVGO) share price when the stock market opens for trading on Monday, but don’t be alarmed. The giant semiconductor maker conducted a 10-for-1 stock split following the market close on July 12.
The “decline” for Broadcom will be the equivalent of dividing one piece of pizza into 10 slices. The slices are smaller, but there’s just as much pizza to enjoy.
With pizza, though, there’s no chance that the smaller slices will miraculously grow larger. It just might be a different story with Broadcom. Will the stock soar after its 10-for-1 stock split? Here’s what history has shown.
Broadcom’s murky stock-split history
Has Broadcom split its shares in the past? Yes and no. It depends on which Broadcom we’re talking about.
Confused? Allow me to explain.
Broadcom Corporation was founded in 1991. The company conducted an initial public offering in April 1998, listing its shares on the Nasdaq stock exchange under the ticker “BRCM.”
Less than a year later, Broadcom conducted a 2-for-1 stock split on Feb. 18, 1999. It did another 2-for-1 stock split on Feb. 14, 2000. Then Broadcom split its shares 3-for-2 on Feb. 22, 2006.
Avago acquired Broadcom in 2016. The company retained its stock ticker of “AVGO” but assumed the Broadcom name with the transaction. Avago had never conducted a stock split. Until now, the “new” Broadcom had not split its stock, either.
How did the “old” Broadcom stock perform after its three stock splits? There’s more murkiness.
Immediately following the 2-for-1 split in February 1999, Broadcom’s shares rose modestly, then fell. However, the stock skyrocketed throughout the rest of the year with the dot-com boom in full swing.
Those huge gains led to the company’s second stock split in February 2000. The stock again moved higher after the split, and then declined. By the end of the year, though, Broadcom’s share price was significantly lower as the dot-com bubble burst.
It was a similar story with Broadcom’s 3-for-2 split in February 2006. Shares rose for a few days after the split, then gave up the gains. By the end of 2006, Broadcom stock had fallen by nearly 30%.
A broader view
Is there any reason for investors to expect better results with Broadcom’s recent 10-for-1 stock split? Actually, yes. But you need to take a broader view by looking at the historical performance of more stocks conducting stock splits.
Fortunately, Bank of America‘s Research Investment Committee has already performed a detailed analysis of all stock splits dating back to 1980. BofA’s team found that stocks rose by an average of 25.4% in the 12 months after announcing a stock split. By comparison, the S&P 500 rose by an average of only 11.9% during these periods.
Broadcom stock has risen roughly 17% since announcing its stock split on June 12, 2024. It still has some room to run to reach the historical average gain.
However, there’s a catch to consider. Bank of America’s committee found that stocks conducting splits since 2010 have delivered lower average gains of 18.3% in the 12 months following the announcement of their stock splits. This more recent history doesn’t give investors much to hang their hats on with Broadcom.
Better growth drivers for Broadcom
I think the smartest approach for investors is to pay no attention to Broadcom’s stock split. Instead, focus on the company’s long-term prospects. The good news is that there are better growth drivers for the chipmaker.
Broadcom’s acquisition of VMware is already contributing significantly to its revenue growth. Demand for the company’s artificial intelligence (AI) accelerators is also surging. I expect both will continue to push Broadcom’s revenue and earnings higher.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Broadcom and Nasdaq. The Motley Fool has a disclosure policy.
Will Broadcom Stock Soar After Its 10-for-1 Stock Split? Here’s What History Shows. was originally published by The Motley Fool
Source: finance.yahoo.com