While stock splits don’t necessarily change the valuation of a company’s stock. They do offer some benefits. Namely, they can make a stock more affordable for retail investors. In that way, companies can draw in new shareholders and capital when they split their stock. For existing shareholders, stock splits increase their share count without them having to spend more money. Over time, this can also prove beneficial as it grows the overall investment of an individual stockholder. Institutional investors may not care all that much about stock splits. However, they are closely followed by retail investors who would love to get their hands on the stocks of certain companies. But, they remain out of reach because a single share costs upwards of $1,000 or more.
Some companies have never split their stock despite the price running higher and higher. Yet investors continue to cling to hope that a split will eventually be announced. Here is stock split watch: three likely candidates to keep on your radar in 2024.
Like Candidates for Stock Splits: Nvidia (NVDA)
Nvidia’s (NASDAQ:NVDA) stock continues to soar and has already risen 64% this year to trade at close to $800. The company’s market capitalization is a hair below $2 trillion. The rapid rise in the share price and its lofty height has ignited speculation that the stock might split. The last time Nvidia split its stock (on a four-for-one basis) in July 2021, the share price had just surpassed $550. Management at the company might be concerned that the rapidly rising stock is putting it out of the reach of retail investors.
The complicating factor in all of this is that NVDA stock does not look overvalued at current levels. This is perceived given the company’s explosive growth rate. Currently, Nvidia’s shares are the cheapest among the Magnificent Seven group of tech stocks. That’s what happens when a company’s sales rise 265% year-over-year and its profits grow at an annualized rate of 769%. Still, for individual investors, paying nearly $800 for one share of Nvidia no doubt comes with sticker shock. Still, many analysts see the share price crossing $1,000 after the company’s recent blowout earnings report.
Eli Lilly (LLY)
Another stock and that is starting to look expensive is pharmaceutical company Eli Lilly (NYSE:LLY). Up 30% on the year and up 143% over the last 12 months, LLY stock is currently trading at an all-time high of $770 per share. The company’s market capitalization stands at $730 billion and many analysts expect Eli Lilly to become the world’s first $1 trillion dollar pharmaceutical concern. The stock continues to rise as sales of its new weight loss drug called “Zepbound” accelerate, prompting speculation that a stock split is coming.
Eli Lilly has undergone four previous stock splits, but the last one happened way back in October 1997. Each previous stock split occurred on a two-for-one basis. Given that the stock is at an all-time high and the speed at which the share price continues to rise, a stock split this year would certainly make sense. LLY stock can be expected to continue climbing higher if the company’s earnings keep growing along with global sales of Zepbound. The weight loss drug was only approved by United States regulators last fall, and analysts expect that sales will surpass $1 billion in its first year on the market.
Chipotle Mexican Grill (CMG)
Now for a company that has never split its stock. That would be Chipotle Mexican Grill (NYSE:CMG). With its share price near $2,650, CMG stock is out of reach for many retail investors. Given the lofty price, Chipotle is constantly discussed as a stock split candidate. Chipotle has been a consistent winner for shareholders since going public in 2006, having risen 77% in the last 12 months alone, including an 18% gain so far in 2024. But for many investors, the share price remains prohibitive. CMG stock also doesn’t pay a dividend, adding to the frustration of shareholders.
So is 2024 the year that CMG stock finally splits? Possibly. The company continues to grow its chain of Mexican restaurants and its earnings at a brisk pace. The quick service restaurant company recently reported earnings per share (EPS) of $10.36 compared to $9.75 that was expected among analysts. Revenue in the final three months of last year came in at $2.52 billion versus $2.49 billion that was forecast on Wall Street. Sales were up 15% from a year earlier, while same-store sales increased 8.4%. The company plans to open as many as 315 new restaurant locations in 2024.
Splitting its stock would only add fuel to the fire for CMG stock and serve to draw in retail investors who would love to get their hands on shares of this best-in-class restaurant name.
On the date of publication, Joel Baglole held long positions in NVDA and LLY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
