Investors love a good stock split. And why not? There's some research to suggest that stocks that perform a split outperform the market.However, just because a stock has enjoyed a significant run-up in price doesn't mean that it will split.
With that in mind, let's check out a stock that has soared in price over the last few years and could be ready for a stock split: AppLovin (APP 0.95%).
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The case for an AppLovin stock split
A top reason why investors might expect a stock split from AppLovin is how much the company's stock has increased in price. As of this writing, AppLovin stock trades for around $270/share.
NASDAQ: APP
Key Data Points
Two years ago, in 2023, its stock traded for around $15/share. That works out to a two-year gain of around 1,700%, or an astronomical compound annual growth rate (CAGR) of 327%.
Needless to say, that's an incredible return. And, for many companies, a move like this would mean a stock split isn't far away. Indeed, many companies like to keep their stock price around $100 to $200 for a few reasons.
First, it makes stock-based compensation easier to administer. By keeping their stock price around $100, managers can more easily fine-tune employee stock option grants in round lots. This is particularly important for tech companies, which often pay a large amount of stock-based compensation.
Second, stock prices under or near $100 are often more appealing to options traders. By keeping their stock price low, companies retain their appeal among retail option traders, who have to put up less capital in the form of premiums to buy options.
Finally, there is some evidence that suggests that stocks that split perform better over the long term. That means some companies may choose to split their stocks to attract further interest from the market.
In any case, with AppLovin shares trading near $270, it's realistic to think the company might consider a stock split.
The case against an AppLovin stock split
Yet, there is one big reason why AppLovin may not perform a stock split, and it's not a particularly happy one for current investors: As of this writing, AppLovin shares have dropped by close to 50% from their all-time high.
Since reaching over $500/share in February, AppLovin shares have tanked as the market has turned bearish and short-sellers have targeted AppLovin.Indeed, several short-selling firms have accused the company of improper actions related to its business practices.
Now, two things must be said in relation to these allegations. First, AppLovin's CEO has denied any wrongdoing. Second, these firms have an incentive to drive down the price of AppLovin stock -- that's how short-sellers make money.
In any event, investors should know that the stock now has these allegations hanging over it, which could negatively affect investor sentiment. That alone might keep the company from considering a stock split in the near future.
Will AppLovin perform a split?
My thinking is that AppLovin will hold off on considering a stock split for the time being. The company is likely laser-focused on two more pressing matters: delivering solid results, and refuting the claims of the short-sellers.
That means investors looking for a stock-split candidate should look elsewhere right now; there are other stocks more likely to perform a split in 2025 than AppLovin.
