Most investors understand that stock splits don’t change anything about a company’s business. They just make the stock cheaper so that more investors can buy it. It is seen as a bullish sign by the market that a company has already achieved stunning success, sending shares to new heights, and there are more good times ahead.
However, a stock split by itself is never a good enough reason to buy the company. You still need to perform your own due diligence to make sure management’s happy talk is valid. Yet it is still worth taking note of which companies might split their shares next.
They are going to be successful companies that the market has rewarded. That’s why I think the two companies below could be among the next businesses to split their shares. They have a strong track record of winning and their businesses look poised to maintain that trajectory. A good case can be made to buy their stocks now regardless of whether they split or not.
24/7 Wall St. Insights:
- Stock splits are popular with investors and are often interpreted as a bullish signal by the market.
- Nothing fundamental about a company’s business changes when it splits its shares. The stock becomes cheaper, but the number of shares rise. You still own the same percentage of the company.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Netflix (NFLX)
It is clear Netflix (NASDAQ:NFLX) won the streaming wars, outlasting and outperforming all those that were born during the pandemic. As it turns out, operating a successful and profitable video streaming service isn’t nearly as easy as Netflix makes it appear to be.
The streamer just reported record third-quarter earnings that sent its stock soaring. Revenue jumped 15% to $9.8 billion while profits caught a rocket and surged 41% to hit $2.4 billion. Even better, it added another 5 million subscribers to give it 282 million, far ahead of second-place Disney‘s (NYSE:DIS) Disney+ streaming service, which has 115 million subscribers (excluding its Hotstar business in India and elsewhere). The entertainment giant’s Disney+ and Hulu services lost $19 million in operating income, though if you include its ESPN+ sports streaming service it had a $47 million profit.
Either way, Netflix makes adding subscribers and reporting profits effortless. The stock responded in kind. Shares are up almost 58% year-to-date and over the past decade have returned 1,380%. To put that in perspective, the S&P 500 is up just 207% over the last 10 years.
That was just around the last time Netflix split its stock seven-for-one in July 2015. With NFLX stock trading at $761 per share today, a new stock split might be in order.
Costco (COST)
It has been even longer since warehouse club Costco (NASDAQ:COST) last split its stock. It was in January of 2020 that the discount, bulk-buying retailer divvied up its shares in a two-for-one split, and over that time COST stock has risen 594%. That outpaces the index by a two-to-one margin.
Yet on a total return basis, Costco has rewarded shareholders with 756% gain versus 270% return by the benchmark index, or nearly three-to-one. Although a fabulous dividend stock to own, COST shares often get overlooked by income investors because the payout yields just 0.5% annually. However, Costco has grown the dividend at a 13% compounded annual rate for at least the last 10 years.
The warehouse club also posted stellar results recently. Fiscal 2024 sales were up 5% to almost $80 billion and it is about to get a big boost to its top and bottom line. The retailer announced it was raising its membership price for the first time in seven years. This is a direct cash infusion to the top line from its 76.2 million paid subscribers. As it has a better than 90% member renewal rate, that money will flow through the income statement to its bottom line.
COST shares are up 36% so far this year and at $890 per share, the discount retailer may decide now is the perfect time to discount its stock via a stock split to make it available to more investors.
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