If you ask any institutional investor about stock splits they will probably tell you that splits don’t really matter. After all, a stock price actually has nothing to do with a company’s underlying fundamentals. Up to a point at least. Some stock prices have been allowed to get so high that retail investors (and the company’s employees and customers) might not be able to afford to buy a single share of their stock.
When stock prices become too high it can impact the metrics that individual investors have to rely upon outside of traditional “buy and hold” investing. Buying options as a hedge or betting on options for upside becomes too costly as each options contract represents 100 shares whether it’s a $20 stock or a $2,000 stock.
Companies can always argue that direct stock purchase buying and the various fractional share buying (like stock slices, etc.) make their stocks more available. What they cannot make a strong case over is that even 50,000 individual investors buying one-fourth of a share each is going to meaningfully make any difference to a stock price from capital inflows. Fractional share ownership is even farther down the line on impacting inflows and outflows of investor capital than odd-lot buyers and sellers.
If you don’t trust the Oggonomics view, maybe a bulge-bracket firm’s view helps. BofA Securities recently showed that stocks that split tend to see 25% stock gains over a year and that the more common share price direction is up rather than down over the following 12-month period.
RECENT SPLITTING WINNERS!
NVIDIA Corp. (NASDAQ: NVDA) saw its shares surge after earnings, but with a $1,000 stock price the big “bonus” news item was that a 10-for-1 stock split was finally heading this way. NVIDIA was last seen trading just under $1,000 — after closing at $949.50 a week earlier ahead of earnings.
Chipotle Mexican Grill, Inc. (NYSE: CMG) announced back in March that it was conducting a 50-for-1 stock split. If a loaded out burrito meal and a drink is now nearly $20 per visit, that left customers with the choice of buying 1 share or buying 150 meals there. At $3,100 on last look, that’s up nearly 10% from its $2,797.56 closing price before the split.
THE BUFFETT EXCEPTION
Oggonomics is looking at some of the other stocks that are in obvious needs of a stock split. This will not include Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE:BRK-B) because Warren Buffett has been against them and he can argue he already gave that opportunity after he created the B-shares.
Warren Buffett and Berkshire Hathaway authorized the creation of Class B shares in 1996 at one-thirtieth the price of Berkshire Hathaway’s Class A shares. The shares have risen about 20-times over since their launch, and Buffett would likely still opine the underlying stock price has nothing to do with the fundamentals like the prized book value per share that drove the values higher.
THE BIG 5 SPLITS NEEDED FOR 2024
Here are 5 of what are the most popular stocks that need to announce stock splits in 2024. These are listed in alphabetical order to avoid any ranking issues.
AutoZone Inc. (NYSE: AZO)
> Stock Price $2,750
AutoZone is a company that seems to have been around forever and its stock has risen 150% in the last 5 years. While a stock split would make it more affordable for employees and customers alike, AutoZone has chosen to spend its capital on share buybacks. Since the start of the repurchase program in 1998 AutoZone’s Board had authorized $37.7 billion in cumulative share repurchases as of the end of 2023. It’s current market cap is $47 billion.
Booking Holdings Inc. (NASDAQ: BKNG)
> Stock Price $3,725
Booking Holdings had its initial public offering on March 29, 1999 back when we all knew it as Priceline.com. With a share price this big its retail investor base can choose to either take a vacation or buy a single share of stock. The one caveat to a split actually taking place now is that back in 2003 when the economy was weak and the dot-com bubble had burst the stock had to endure a dreaded 1-for-6 reverse stock split because its stock had gotten so low.
Broadcom Inc. (NASDAQ: AVGO)
> Stock Price $1,350
Broadcom has seen its shares surge higher and higher, and what used to be a communications semiconductor leader has evolved into a much larger and diversified key technology player after acquiring VMware, Symantec enterprise security business and CA Inc. for nearly $100 billion combined. Its attempt to buy Qualcomm failed. Even then, the stock is up well over 300% in the last 5 years.
Costco Wholesale Corporation (NASDAQ: COST)
> Stock Price $800
Costco is a stock that many investors have waited and waited for any good entry point for quite some time. The reality is that it’s stock chart always seems to show that favorable entry price as “last week.” Costco just recently hit 70% of Walmart’s market cap with just 37% of the revenues, but hey — everyone used to draw the same parallel for Intel versus NVIDIA too. Costco’s annual membership is $60 per year, so an $800 share price boils down to more than 13 years of dues without spending a dime at the stores. The company last split its shares 24 years ago (Jan-2000) at a 2-for-1 split and its shares are up about 400-times since its original listing date. The company can seem to do no wrong, but at $800 this stock is becoming unaffordable for most retail investors who want to buy more than a single share.
MercadoLibre Inc. (NASDAQ: MELI)
> Stock Price $1,700
MercadoLibre, for better or worse and fairly or not, has been referred to as “The Amazon of Latin America” for years. The bulk of the trading volume for MercadoLibre is on the NASDAQ. Despite being 25 years old and despite an IPO in 2007, MercadoLibre is still growing at rates that most U.S. companies can only dream of. These ADSs are listed on other exchanges closer to its home markets as well. The share prices there may also seem high on the surface for retail investors in those markets:
- Buenos Aires – (MELI.BA) 17,563.00
- Sao Paulo – (MELI34.SA) 74.25
AND MORE TO COME???
While some of the other stocks are old established brands, they generally just are not chased after compared to the five stocks above that are more common in investing and trading circles. These five stocks are also listed in alphabetical order to avoid any appearance of “ranking” issues.
Deckers Outdoor Corp. (NYSE: DECK) is best known for footwear in the UGG, HOKA and Teva brands. Its stock has doubled in just over 6 months (and up 500% in 5 years) to nearly $1,100 with a $27 billion market cap. Deckers last split 3-for-1 in 2010.
Fair Isaac Corp. (NYSE: FICO) is known for its “FICO credit scores.” It has a $1,300 share price, down about 10% from recent highs, and it has a $31 billion market cap.
Mettler-Toledo International, Inc. (NYSE: MTD) is a king in precision instruments. With a stock price of $1,400 its market cap is nearly $30 billion. With an average volume of 139,000 shares per day some days it does not even trade 100,000 shares per day. Do dividends and its Swiss status matter? Historically, this stock has not paid dividends on its common stock. It is incorporated in Delaware and its headquarters is in Greifensee, Switzerland.
NVR Inc. (NYSE: NVR) is a homebuilder with a $7,500 share price. It has a $23 billion market cap but trades less than 20,000 shares on an average day. NVR is barely the #4 among all homebuilder market caps (less than $1 billion short of Pulte) but has a stock price 50-times higher than the other top 3 on average.
Super Micro Computer Inc. (NASDAQ: SMCI) may not be the largest share price nor the largest market cap of “other techs” needing a stock split. Still. at $800 it is now down a third from its peak and is on the heels of the NVIDIA/AI boom. It now has a $45 billion market cap, about 3-times current year revenues and 33-times current year earnings expectations.
