The stock market loves it when a company makes some kind of positive change. If a company announces a dividend or buyback program, shares will often rally heavily on the news.
Another event that’s seen a jump in shares in recent years has been the announcement of a stock split. While it doesn’t change the total value of a company, it does change how many share investors have, and the price per share.
And as long as the price is low, there’s a reasoning that investors will bid it higher.
The most recent company to announce such a move is GameStop (GME). The video game marketplace is looking to split shares 4 for 1 in the form of a stock dividend. While that won’t change the total market cap, it will make the cost of each share one quarter of the former value.
Action to take: Revenue is up 8 percent over the past year, but earnings have been negative as the company has been pivoting from physical retail game stores to also creating an online marketplace. Shares look attractive as a speculative play on the success of such a platform. The stock does not pay a dividend at this time.
For traders, there’s still a lot of premium in the stock. But with a split later this month, the September $130 calls, last going for about $18, could deliver mid-to-high double-digit gains during and after the split.
Disclosure: The author of this article has a position in the company mentioned here, and may further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.