Affordable Stocks on the Horizon? 3 Companies to Watch for Stock Splits
In January 2024, Walmart (NYSE:WMT) announced it was conducting a 3-for-1 stock split which was executed in February. This was the tenth stock split in the company’s history. That is leading some investors to wonder if there are other stocks to watch for stock splits in 2024.
When a company splits its stock, it divides its number of existing shares into multiple shares. A stock split immediately impacts existing shareholders because the number of shares they own will increase by the multiple of the stock split. For example, in a 2-for-1 split, the amount of shares an investor holds will double. So, 20 becomes 40, 40 becomes 80 and so on.
However, the dollar amount of the shares owned would stay the same because the share price would be cut by the same multiple. Therefore, in a 2-for-1 split, if they owned 20 shares of a stock priced at $100, they would now own 40 shares, but the stock would be priced at $50.
Stock splits are normally initiated by a company because they believe its stock price has reached a price that may be keeping many investors away. By offering their shares at a more accessible price, companies hope to increase interest in its stock. For example, Walmart issued its stock split as a way of making it possible for more employees to buy whole shares, rather than fractional shares.
In theory, the opportunity to increase the base of investors causes the stock price to move higher after the split. However, a stock split doesn’t change the value of the outstanding shares. Therefore, a stock split doesn’t fundamentally change a company’s valuation.
Chipotle Mexican Grill (CMG)
Chipotle Mexican Grill (NYSE:CMG) has not split its stock in its 16 years of being publicly traded. And, despite a stock price that is currently over $2,750, no evidence exists of the company planning to issue one.
However, there’s a first time for everything. And with many investors looking for value, CMG is considered one of the stocks to watch for stock splits. One of the key arguments for a split could be increased liquidity. Volume is down from about 600,000 shares daily to around 250,000 today.
CMG is in a select group of restaurants that has proven to be resilient despite the impact of a global pandemic, supply chain concerns, and inflation that has affected both producers and consumers. The company’s success is about more than its commitment to sustainability and ethical sourcing. Also, CMG has leaned into technology which has boosted the company’s gross profit margin to over 16.4%.
Booking Holdings (BKNG)
Booking Holdings (NASDAQ:BKNG) is another member of the $1,000-per-share club. The company has issued one stock split in its history. However, it was of the reverse variety. In 2003, BKNG issued a 1-for-6 reverse stock split. The fact that the company has surged to over $3,400 a share after a reverse stock split is impressive and uncommon.
Despite the recent CPI and PPI data that shows inflation may be heating up, consumers continue to travel. This is especially true in travel to Europe. Business travel is also increasing, even if that travel is in the form of bleisure (the combination of business and leisure) with remote or hybrid work still being common.
Finally, Booking Holdings is a one-stop shop that is merging artificial intelligence (AI) into its applications to give the site more of a concierge feel for travelers. That’s one reason to believe the company can continue to build on successive years of high double-digit revenue growth.
Costco (COST)
Costco (NASDAQ:COST) is a beloved destination for the millions of consumers who are members of the warehouse club. They enjoy the low prices. And investors enjoy the predictable revenue and earnings those members deliver in the form of predictable annual recurring revenue (ARR).
But in addition to its $725.63 share price, COST stock trades at nearly 45x forward earnings. That’s a premium valuation no matter how investors look at it. However, in the last five years, COST stock has delivered 210% growth in its share price. And when investors factor in the total return they get when they include the company’s rock-solid dividend, it’s hard to say Costco doesn’t warrant its premium valuation.
A stock split won’t affect that valuation. But it might make the stock feel a bit more attractive to some investors. Costco has only split its stock once, a 2-for-1 split in 2000. If it were to do a stock split, it would likely do much more than a 2-for-1 split.
On the other hand, COST stock is down about 10% following its last earnings report. It has pushed forward earnings down from over 50x to its current level around 47x. That may be enough for the board of directors to hold the line.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
