Companies announce stock splits all the time, and so far this year a number of high profile companies have divvied up their shares into smaller slices.

Walmart (NYSE:WMT) split its stock in February, Chipotle Mexican Grill (NYSE:CMG) did the largest split in NYSE history in June when it split its shares 50-to-1, and Nvidia (NASDAQ:NVDA) split its stock 4-to-1 a month later.

While there are several candidates to make the next stock split announcement, Vertex Pharmaceuticals (NASDAQ:VRTX) may just trump them all when it reports earnings on Nov. 4.

24/7 Wall St. Insights:

• Vertex Pharmaceuticals (VRTX) has a virtual monopoly on the cystic fibrosis market with two therapies treating about 75% of all patients.
• With VRTX stock trading at $475 per share, well ahead of even larger rivals, the biotech may choose to make its shares more accessible to investors.
• 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.

Smaller slices of the pie

Stocks splits, of course, are a corporate non-event. Because they only change the number of shares outstanding — and the stock price — there is no real impact on the underlying fundamentals of the company. 

Yet investors love them! They are viewed as a bullish signal by management that more growth is on the way and by artificially lowering the share price, more investors will have an opportunity to buy them. 

There is some evidence this is true. Data from previous stock splits suggests companies grow between 25% and 30% in the 12 months after the event. But a split is only reflecting strong past performance and not creating any new shareholder value. Investors still need to scrutinize the business to ensure it will remain on the same trajectory.

For example, earlier this month Super Micro Computer (NASDAQ:SMCI) completed a 10-for-1 stock split. Shares that had been trading near $416 pre-split were now going for $41.60 per share. Yet SMCI had been trading well north of $600 a share prior to the announcement, but disappointing earnings, a short-seller’s report calling out potential accounting irregularities, and news of a Justice Dept. probe into its accounting practices all sent its shares careening lower.

And now its accounting firm EY has resigned saying it doesn’t want to touch Super Micro’s books anymore. The stock tanked another 33% on the news. SMCI stock is down 73% from its March peak. Stock splits don’t always mean good news.

The big fish in a small pond

Vertex Pharmaceuticals isn’t facing any similar scandals. The biotech is up 162% over the past three years as its virtual monopoly on cystic fibrosis treatment continues driving its business higher. 

Of the estimated 92,000 patients with CF in North America, Europe and Australia, Vertex treats nearly three-quarters of them. Its leading therapies are Trikafta and Kaftrio that have generated $4.9 billion in sales in the first half of 2024, a 14% increase over the year-ago period. The duo account for 92% of Vertex’s total revenue.

The risk for the biotech comes in being so narrowly defined. By being laser-focused on a single condition, and having all of its sales dependent upon one or two drugs, the concentration risk is heightened in the event a rival develops a new, better treatment.

That’s why Vertex is looking to broaden its outlook to enter the rare disease drug market. It has partnered with CRISPR Therapeutics (NASDAQ:CRSP), which helped get the gene-editing therapy Casgevy approved by the Food & Drug Administration last December for the treatment of transfusion-dependent beta-thalassemia (TDT) and sickle cell disease (SCD). It has billion-dollar blockbuster potential.

While CRISPR will receive the lion’s share of the profits for Casgevy, Vertex will get 40% of them. It also gets reimbursed for 40% of the research and development costs that went into the drug.

Time for action

Shares of VRTX trade $475 each, up 33% over the past year. A stock split could make sense now to increase its liquidity and allow for more efficient pricing of the biotech’s shares by narrowing the bid-ask price. 

As the stock becomes more accessible to a broader range of investors, it has the potential to boost its trading volume. 

Vertex Pharmaceuticals isn’t a stranger to splitting its stock, though it is a long time since the last split occurred. The biotech is a much different company today than it was in 2000 when it split its shares 2-for-1. 

With a strong, profitable CF business, potential growth in new markets, a robust pipeline of therapies in clinical trials, and a stock price well ahead of rivals like Amgen (NASDAQ:AMGN) and Biogen (NASDAQ:BIIB), VRTX could be the next stock split stock.

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