Investors’ enthusiasm for stock splits is a recent phenomenon and surprising. It’s surprising because stocks represent ownership positions in real-world businesses. Dividing ownership into more pieces — which is all a stock split does — won’t improve a business in any material way. Therefore, it’s not one of the primary things that investors should focus on.
This disclaimer out of the way, I can’t deny that investors are indeed excited about stock splits, and many companies are making stock-split announcements accordingly. In this article, I’ll highlight three stocks from the S&P 500 that could very well split within the next year or so.
1. Costco Wholesale
Costco Wholesale (NASDAQ: COST), a warehouse-style retail chain with nearly 900 locations, makes most of its money from selling memberships. The company’s members enjoy low prices and reward the company with loyalty.
Costco last split its stock in January 2000. At the time of that 2-for-1 split, it traded at about $80 per share, bringing its split-adjusted price down to $40. For perspective, it trades at more than 10 times this split price today at $860 per share, as of this writing.
As already mentioned, stock splits don’t materially improve the business in any way. And this could be why Costco’s management hasn’t split the stock in more than two decades: It’s been too focused on making this one of the best retail operations in the world.
But perhaps Costco is ready to make a change and split its stock. Former Chief Financial Officer Richard Galanti was with the company for 40 years and is seen as one of the main architects for the success of the business. But he just stepped down, and his successor, Gary Millerchip, just stepped in. The change in management might motivate action on a stock split.
2. Deckers Outdoors
Sometimes stocks are split after enormous gains over relatively short time periods. And this could motivate shoe company Deckers Outdoors (NYSE: DECK) to split its stock. During the stock market crash at the beginning of the pandemic, Deckers stock was briefly under $100 per share. Now it trades at over $1,000 per share.
Rising more than 900% in four years could motivate management to split its stock. But this stock performance didn’t just happen — business is booming for this footwear company.
Deckers has two big brands included in its portfolio: Ugg and Hoka. These two generated a combined $4 billion in net sales in the company’s completed fiscal 2024 (the fiscal year ended in March). For perspective, these two brands had less than $2 billion in combined net sales in fiscal 2020. More than doubling in just four years, these two brands are undeniably on consumers’ minds.
Higher mindshare means that direct-to-consumer sales have soared for Deckers. And since this is a higher-margin revenue stream, profits have soared as well.
The higher profits were likely a big reason that the stock was included in the S&P 500 earlier this year. But the higher profits also help explain why the stock is now more than $1,000 per share, which could lead management to a split.
3. Booking Holdings
Online travel company Booking Holdings (NASDAQ: BKNG) split its stock way back in 2003, but it was a 1-for-6 reverse stock split. That’s when it was still called Priceline.
Back then, the business was struggling and the stock price languishing. Management consequently needed to boost its stock price by performing the reverse split, or the company would have been delisted.
On a recent podcast for Barron’s, CEO Glenn Fogel was asked about splitting the stock and said: “I’m not saying we’d never do it. Maybe we would.” But for Fogel, this is far from his mind because, again, he’s more concerned with the fundamental drivers of the business.
Specifically, it seems that Fogel is predominately concerned with providing travelers with the best possible travel booking platform, making constant changes to make things simpler. And it seems like the company is quite pleased with its efforts.
It started off its financial report for the first quarter of 2024 by pointing out that its bookings were up 10% year over year to nearly $44 billion — its highest bookings ever.
Booking’s bookings likely wouldn’t be at an all-time high unless it was truly building an attractive platform for travelers. So it seems Fogel’s focus on the business is worthwhile.
To me, Booking is a great example to close this article. Investors might be focusing on stock splits, but good management teams focus on running their businesses well. In this case, Booking is hitting all-time high platform adoption, which has elevated its profits. And these higher profits are why the stock has surged to an all-time high of nearly $4,000 per share.
Stock splits might be more fun. But for investors who want to make money over the long term, it’s important to find businesses such as Booking that are growing thanks to a relentlessly effective focus on getting better.
Should you invest $1,000 in Costco Wholesale right now?
Before you buy stock in Costco Wholesale, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Costco Wholesale wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $830,777!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of June 10, 2024
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Booking Holdings and Costco Wholesale. The Motley Fool has a disclosure policy.
Stock-Split Watch: 3 S&P 500 Stocks That Look Ready to Split was originally published by The Motley Fool
Source: finance.yahoo.com