Will KO Stock Split?

Will KO Stock Split? Many traders are wondering whether one of the biggest blue-chip firms is going to cut its share price in half later this year. What’s up with Coca-Cola (KO) anyway?

Coca-Cola is a company that almost all of us recognize as a household name. As a leader in the cola wars for decades, it has produced staggering gains – a $40 share bought at the IPO in the earliest parts of the 20th century would now bring many thousands of dollars.

With that in mind, let’s look at some of the expectations around this leading stock for the year ahead.

Why Do Stocks Split?

In many ways, a stock split is more a cosmetic procedure than anything else. When companies split a stock, they often do it to make shares more affordable to small investors.

They may also do it to align their share price with the prices of competitors. In other words, if you can buy alternative soda stocks for $5 or $10 a piece, but Coca-Cola’s stock is up at $200 or $300, the management team may decide it’s time to issue double shares, to cut that stock price in half.

Nothing about the valuation of the company is changing – the change is on paper, where single shares are now double and each one has half of its prior value.

Is A Stock Split Good Or Bad?

Although some would argue that a stock split is good because it makes shares more affordable, nothing is really changing in terms of the value of what you’re holding. You’re simply able to by double the number of shares for the same amount of money. The shares are worth half of what they were before.

As for the downside, stock splits can be confusing to investors who aren’t continually paying attention. When someone doesn’t see a share split in a historic chart, that can introduce misinformation in investing research. Stock splits can also introduce more transactions as more people are suddenly qualified to play.

It’s also worth noting that stock splits to make shares affordable are even less practical in the age of fractional investing, where platforms issue tokens helping small traders to buy pieces of an individual stock or cryptocurrency.

Will KO Stock Split?

To look at the likelihood of Coca-Cola stock splitting this year, let’s look at the history.

With a historic chart going back to the middle of the last century, we see that Coca-Cola stock made two 2-1 splits in the 1960s, and one 2-1 split in the 1970s.

In the 1980s, Coke made a 3-1 split and a subsequent 2-1 split. There were also two 2-1 splits in the 1990s, and another one in 2012. That brings us up to today, where traders are wondering whether another split is in the making.

From a share price standpoint, there’s not a lot of evidence to suggest that Coca-Cola would split its stock again, since the share price remains close to what it was at the end of last year, at just over $50 per share.

However, some analysts believe that Coke may split its shares again rather soon.

Is a KO Stock Split Good or Bad?

Many traders would say that a KO stock split would be neither good or bad from a purchasing power standpoint. Some would also say there is no need to split the stock because of the share price.

Others would take the opposite approach and say that if a split occurs, it means that the equity has arisen correspondingly in value, and that would be a good thing. Indeed a stock that splits often rises back up to its pre-split value which in turn results in a doubling of money.

What is a 4-1 Stock Split

A 4-1 stock split is a much more powerful split that would reduce share prices to one quarter of their prior value by expanding share volume by 400%.

One of the best examples of a recent multi-split is Tesla’s 5-1 stock split, which was done after the company’s share prices ballooned from several hundred dollars to several thousand dollars during 2020.

That context shows what usually precipitates a stock split in the first place: TSLA shares got so expensive that most small-time investors couldn’t afford it. So the 5-1 stock split brought the per-share price back to earth, after Tesla enriched its buy and holders greatly.

Will KO Fall After a Split?

Here again, the terminology is a little confusing. The stock price would be cut in half after a split, but that doesn’t mean the stock fell in value.

The stock would only fall in value for a variety of market reasons largely unrelated to whether board members decided to split the stock or not.

Is a KO Stock Split Good Long-Term?

So again, if you take the principle that companies will only split when value increases, you would say that a split would be good. It also does make shares more attractive to small investors if they don’t have the money to purchase madly expensive individual equity shares.

Taking a birds-eye approach to this stock’s current value, and the context of the metrics behind it, we rate Coca-Cola at 73, meaning that we see it as a buy right now. Whether the stock splits or not, traders will still gain when the underlying share value increases.

As we’ve pointed previously, none other than Warren Buffett has greatly endorsed Coca-Cola, plowing enormous amounts of money into its stock. Indeed he earns a dividend annually these days that rivals his original principal investment in the firm.

Could Coke rise again? Sure, since much of its appeal is around stable expanding sales. Coca-Cola’s value expands with each new drinker, and every new restaurant or route around the world ordering this bubbly beverage. That makes KO by definition a value stock, and a stable one for today’s volatile market.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.