The revival of stock splits has been one of the more noteworthy market trends in recent years. Companies generally embark on this course of action after years of consistently strong business and financial performance have driven the share price into the stratosphere. While a stock split doesn’t change the intrinsic value of the company, it does make shares more affordable for employees and the general public, a reason that is frequently cited by companies as the primary reason behind the split.
However, investors should look to the robust underlying results that led to a stock split in the first place because consistently strong business performance is the best reason to own a stock.
It stands to reason, then, that companies that have recently announced or conducted stock splits are fertile ground for future gains. Let’s take a look at two companies that are ripe for the picking.
1. Nvidia
Artificial intelligence (AI) has been making headlines over the past year or so, and it’s easy to understand why. Recent developments in the field, namely generative AI, can simplify a number of routine tasks, helping make workers more productive. Imagine systems that can prioritize emails and draft responses, quickly find and summarize documents related to a particular topic, and generate presentations from available data — all from a few simple prompts.
Nvidia (NASDAQ: NVDA) is the leading provider of graphics processing units (GPUs) that underpin this revolutionary technology. As such, when the AI revolution kicked off early last year, it drove demand for Nvidia’s processors to record heights, and it shows no signs of slowing.
In the company’s fiscal 2025 first quarter (ended April 28), Nvidia delivered its fourth consecutive quarter of triple-digit year-over-year sales and profit gains. Record quarterly revenue of $26 billion soared 262% year over year, driving earnings per share (EPS) to $5.98, an increase of 629%. Management expects Nvidia’s growth spurt to continue, calling for second-quarter revenue of $28 billion, up 107%.
Lest there be any doubt, it’s the accelerating adoption of generative AI that’s driving the results. Nvidia’s data center segment, which includes cloud computing and AI processors, hit record sales of $22.6 billion, up 427%.
With the stock up 3,000% over the past five years, management announced a 10-for-1 stock split that will take place in June. Nvidia also increased its dividend by 150% to $0.01 on a post-split basis. With a yield of 0.04%, it’s certainly nothing to write home about, but it forms the foundation for meaningful increases in the future, especially since it boasts a payout ratio of less than 3% of profits.
2. Chipotle Mexican Grill
It takes an extraordinary business to continue its growth during the worst period of economic contraction in more than a decade, but Chipotle Mexican Grill (NYSE: CMG) did just that. Despite the macroeconomic headwinds of the past few years, the company grew comparable store sales (or “comps”) in each and every quarter going back to the start of 2022. That’s a testament to the strong demand for Chipotle’s “food with integrity.”
The company kicked off the year in style, with revenue growing 14% year over year to $2.7 billion, while diluted EPS of $13.01 surged 24%. Comps continued to shine, increasing by 7%, driven by increased customer visits and Chipotle’s unmatched pricing power. Perhaps as importantly, restaurant-level operating margins continued their unrelenting trek higher to 27.5%, up from 25.6% in the year-ago period.
Further fueling its robust growth is the company’s wildly successful digital strategy, as Chipotle’s rewards program surpassed 40 million members earlier this year. Another big drive is the company’s Chipotlanes, the dedicated drive-thru just for mobile orders. Management notes that locations with Chipotlanes generate higher sales and increase profit margins. As a result, digital orders are growing faster than overall sales and represented 37% of total food and beverage revenue in the first quarter.
Chipotle stock hit a new all-time high earlier this month. With gains of 375% over the past five years, management announced a 50-for-1 stock split, which will take place in June. Management called it “one of the biggest stock splits in New York Stock Exchange history.”
Should you invest $1,000 in Nvidia right now?
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Danny Vena has positions in Chipotle Mexican Grill and Nvidia. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool has a disclosure policy.
The 2 Best Stock-Split Stocks to Buy Hand Over Fist Right Now was originally published by The Motley Fool
Source: finance.yahoo.com