Heading into 2024, many analysts believed Chipotle (NYSE:CMG) was on the verge of splitting its stock. But many weren’t prepared for the company’s 50-for-1 split, one of the recent most extensive stock splits.
Stock splits are generally seen as being bullish signs for a stock. This is even though a split doesn’t change the company’s fundamentals. When a company splits its stock, the number of outstanding shares increases, and the stock goes down proportionately. For example, every CMG stock owner will receive 49 additional shares for every share they hold.
The bullish feeling about stock splits is part of investor psychology. Some investors simply won’t buy a stock after it reaches a certain price, even when you can buy fractional shares. Knowing this, companies split their stock to make it more accessible to a broader range of investors.
However, making the stock accessible and attractive are two different things. The Chipotle split will likely go over very well because the company’s fundamentals look attractive. If it does, it may prompt other companies with lofty share prices to consider splitting their stock. Here are three stocks that make appealing candidates for stock splits.
Costco
Costco (NASDAQ:COST) reported its fourth quarter and full-year earnings in early March. Revenue and earnings were up year-over-year. The company’s guidance echoed some of the concerns other companies shared. Consumers continue to buy essentials but are cutting back on discretionary spending.
Investors should expect more of the same in coming quarters. That performance alone isn’t sufficient for the company to split its stock. On the other hand, the stock is up nearly 50% in the last 12 months. That’s impressive growth and could be causing investors to stay away. Trading volume is down about 39% compared to the stock’s 20-year average.
If Costco does execute a stock split, its valuation won’t change. COST stock trades at around 47x forward earnings, and the high single-digit growth in twelve-month earnings may not be enough to increase the stock price. However, if Costco increases its membership fee, earnings could get a boost, driving COST stock up by 201% in the last five years or even higher.
Broadcom
All eyes have been on Nvidia (NASDAQ:NVDA) in the chip sector, and not without reason. Just when attention in NVDA stock was cooling, the company announced a new GPU platform, Blackwell, at its recent developer conference. And realistically, NVDA stock is rumored in companies that may issue stock splits.
However, if you’re looking for a different way to play the chip sector – and possibly still get a stock split, consider Broadcom (NASDAQ:AVGO). The stock is one of the leaders in helping companies build their AI infrastructure.
AVGO stock is up more than 100% in the last year and institutional investors are showing heavy interest in AVGO stock. Having done it three times, Broadcom is not a newcomer to stock splits. Notably, the company hasn’t split its stock since Avago acquired it in 2016.
The chip sector will likely continue to be red hot for several years. For companies thinking about splitting their stock, that’s something you look for. That way, the stock will move up from its split-adjusted price as the company grows revenue and earnings.
Booking Holdings
Stock splits can be both positive and negative. Booking Holdings (NASDAQ:BKNG) instituted a 1-for-6 reverse stock split in 2003. That makes the company’s current situation even more remarkable, with a stock price of over $3,600.
Booking has become a one-stop shop for investors looking to scratch their travel itch. That itch is becoming more constant as the lines between work and leisure remain blurry. The company is adding AI capabilities, making the platform even more useful for consumers.
Like the other stocks on this list, BKNG stock is up 111% in the last five years. One thing that would argue against a split is that the company is seeing increased trading volume, which suggests that investors, for now, believe there’s good value in the stock’s current P/E ratio of around 31x earnings.
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.
