Investing

Here Are the Next 3 Stock Splits to Keep on Your Radar

Chris MacDonald

Published: November 1, 2024 8:11 am

A stock split divides existing shares into multiple new ones, increasing a given company’s share count and making shares more affordable for those looking to buy in. For the same $10,000 investment, investors will simply be able to own more shares of a given company, though the total percentage ownership of the overall business will remain the same. This mathematical exercise is carried out by many companies for various reasons, but it’s basically cutting a whole pizza into more slices. That’s all it is.

That said, there are many reasons why companies undertake stock splits. A given company may want to incentivize existing employees using stock, and offering more precise amounts (in terms of compensation) becomes easier with lower share prices. Additionally, many retail investors tend to like this move, as some brokerages still require orders to be placed in full share amounts. And for those trading options, premia on contracts (which are bundles of 100 shares) become much more affordable, increasing liquidity in this key market.

So, there are some knock-on effects and reasons why companies take on stock splits. Historically, these splits don’t necessarily impact a given stock over a long enough time frame. But in the short-term, many investors may be enticed to put their capital to work in a stock that’s about to split, as they can have big moves running up to the split itself.

So, for those on stock split watch, here are three companies that may possibly announce such a split soon. These are companies with relatively high share prices and have either publicly commented on splits in the past, or have undertaken stock splits previously.

Key Points About This Article

• Stock splits don’t fundamentally affect the valuation of a company, but can have a number of positive knock-on effects for investors over the short term.
• For those on stock split watch, here are three companies to keep on the radar screen right now.
• 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.

ServiceNow (NOW)

ServiceNow (NYSE:NOW) is a company which may certainly be due for a stock split, given the fact that its share price is encroaching on the $1,000 level, and that’s a psychological threshold many view as one which may spur a company’s board to take on a split.

This has been a truly incredible performer over the long-run, with NOW stock surging more than 3,400% since its 2012 IPO. The idea for a stock split with ServiceNow would be to both improve and enhance liquidity for existing employees (many of whom receive stock options), and also make this stock more accessible to retail investors. Institutional money managers may not scoff at this price, but acquiring just 1 share of stock for the average Joe may be out of reach, particularly for investors getting started out. Broadening an investor base is generally considered to be a good thing. 

Back to the employee compensation price – in Q2 2024, stock-based compensation made up 18.6% of ServiceNow’s operating expenses and cost of revenue. Thus, the company’s stock price influences compensation, as a lower price allows better control over pay. That may be reason enough for ServiceNow to instate a split, instead of increasing the time it takes for shares to vest, balancing compensation practices and reducing risks for the stock itself. 

Eli Lilly (LLY)

Eli Lilly (NYSE:LLY) is another U.S. giant that’s seen its share price rocket to $900 per share at the time of writing. The company is best known for its plethora of drugs that treat conditions from weight loss to diabetes, cancer and autoimmune diseases. This is a stock that’s been in the limelight of late, thanks to its diabetes/weight loss drugs Mounjaro and Zepbound, which have seen absolutely torrid demand as Americans look to lower than number on the scale. 

This has also been among the most-traded stocks in terms of options activity over the past year, leading some to speculate the company could be on the verge of announcing a split. Keeping the momentum going, in any way possible, is what many boards are after. And while the sugar high from stock splits can be short and intense, most companies aren’t opposed to seeing their stock price soar to ever-higher heights.

Now, Eli Lilly’s stock has seen some volatility of late, so we’ll have to see when a potential stock split may be announced, and what the split would actually be. The company has a history of 2-for-1 stock splits and, with shares up 71.57% in a year, may be due for another. In Q2, revenue rose 36% to $11.3 billion, with new products contributing $3.5 billion. Earnings per share reached $3.92, driven by strong U.S. demand for Mounjaro and Zepbound. So, with plenty of fundamental tailwinds at its back, I’d put this stock in the bucket of likely stock splits over the next year for sure. 

AutoZone (AZO)

AutoZone (NYSE:AZO) is the largest U.S. aftermarket auto parts retailer with 7,140 stores, serving both DIY customers and professional mechanics. As far as companies with boring businesses are concerned, AutoZone may be put in such a bucket, but its stock price performance has been anything but boring. Currently trading around $3,300 per share at the time of writing, this is among the most expensive stocks in the market, and one I think could see a split for this reason alone. 

The company has undertaken two prior stock splits, providing plenty of room for speculators to run wild with the idea that another split is on the horizon. Analysts have pointed to the stock’s strong earnings growth and attractive valuation as reasons to own the stock. But if many retail investors can’t even buy one share, the question is will they be able to participate in this company’s gains? I think AutoZone’s board would like that answer to be yes.

In my view, AutoZone isn’t only a candidate for a stock split, but a rather large one. This is a stock that could split 20-to-1 and still be on the higher end of reasonable for many investors.

Again, this is speculation on my part, but I do think AutoZone is likely to announce a split, and sometime soon. If AZO stock continues to deliver 25% returns (as it has over the past year), this is a stock that could simply get out of reach fast for the average investor.