Stock-Split Watch: Is IonQ Next?

One of the higher-performing companies in the market since the 2022 bear market ended is quantum computing stock IonQ (NYSE: IONQ). Since its low at the end of 2022, the stock has risen by as much as 2,200%. Given its potential to combine its computing power with artificial intelligence (AI), it's understandable why the stock has gained popularity.

One indication of rising popularity is when investors start to wonder whether a stock is a potential candidate for a stock split. Indeed, the gains since its 2022 low are closer to the 1,400% range. Nonetheless, considering that it's still a massive gain, one might wonder whether IonQ could be next.

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The nature of stock splits

Stock splits are a popular workaround for high nominal prices. Of course, higher stock prices are bullish for a stock on the surface, as this phenomenon indicates growth.

However, problems may arise when a stock price becomes so high that smaller investors cannot afford to buy a single share.

In the case of Berkshire Hathaway, its outgoing CEO, Warren Buffett, has opposed splits, and the company's A shares are now priced at around $750,000. Buffett later compromised by introducing B shares with a lower nominal price, but they hold less proportional voting power.

Investors now also have a workaround with fractional shares. Still, managing fractional shares can add to ownership costs, making that approach a less appealing option.

Moreover, prices can become so high that a stock experiences reduced liquidity. If that happens, a stock can become more difficult to buy or sell.

Thus, companies tend to seek a compromise on this issue. If stock prices become excessive, they may split shares to make their stocks appear more affordable.

On the other hand, some investors may perceive a very low stock price as a sign of a troubled stock. In that case, they may approve a reverse stock split, which combines shares to increase the price.

IonQ and a stock split

According to these points, IonQ looks to be in the worst position for a stock split. It sells for $45 per share as of the time of this writing. This is up from the end of 2022, when it fell to an intraday low of $3.04 per share, putting its price in penny stock range.

At such a level, it was a possible candidate for a reverse stock split. However, it grew out of penny stock status organically, making such a move unnecessary.

Conversely, in the $45 per share range, it's far from being a typical stock split candidate. In today's environment, stocks such as Broadcom and Nvidia waited until they were at or above $1,000 per share before their boards approved a split.

Even a price-weighted index like the Dow Jones Industrial Average would not split IonQ stock if it were a component. Price-weighted indexes will encourage their component companies to split stocks periodically, so they do not have excessive sway over the index.

Still, three of the 30 Dow components have prices over $500 per share. That's further confirmation that a price like $45 per share is highly unlikely to justify a stock split in today's market environment.

Do not expect IonQ to split its stock

Given the current state of IonQ, the market has priced it at a level that implies strong growth while selling at a price investors can typically afford. This makes IonQ among the worst candidates for such a move.

As previously stated, IonQ might have justified a reverse stock split back when it traded at just above $3 per share. However, the fact that it escaped its penny stock status by growing its share price likely helped improve the outlook on IonQ stock.

Additionally, its $45 per share price is within the reach of small investors, making it unlikely to deter any interested investors or reduce the stock's liquidity. Thus, until the stock either experiences massive growth or loses nearly all of its value, stock splits are unlikely to be an issue for this quantum computing stock.

Will Healy has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway, IonQ, and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.