Stock splits are popular with investors. They make stocks more affordable and can also put quality stocks in the spotlight. That’s because splits are only necessary after a substantial and sustained increase in stock price, which in itself is often an indication of a company with solid financials and attractive growth prospects.
Nvidia (NASDAQ: NVDA) is a prime example. The Wall Street Journal has described the chipmaker as “nearly invincible” because it has a sustainable competitive advantage that includes superior hardware and a robust suite of supporting software. Nvidia shares have risen 780% since January 2023 amid unprecedented demand for artificial intelligence processors.
The company reset its soaring stock price with a 10-for-1 stock split in June, its second split in three years. And Wall Street remains bullish. The stock has a median 12-month price target of $144 per share, implying a 12% upside from the current share price of $128. But some analysts see more upside in two other stock-splitting stocks.
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Broadcom (NASDAQ: AVGO) announced a 10-for-1 stock split in June 2024 and completed the split in July 2024. Hans Mosesmann of Rosenblatt Securities recently raised his price target to $240 per share, representing a 50% upside from the current share price of $160.
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Celsius (NASDAQ: CELH) announced a 3-for-1 stock split in November 2023 and completed the split that same month. Gerald Pascarelli of Wedbush Securities recently lowered his price target to $83 per share from $85 per share, but the new estimate still implies a 112% upside from the current share price of $39.
Here’s what investors need to know about Broadcom and Celsius.
Broadcom: 50% Implied Upside
Broadcom specializes in semiconductors and infrastructure software. It is a market leader in data center networking chips and application-specific integrated circuits (ASICs), custom silicon built for specialized use cases such as artificial intelligence (AI). For example, Broadcom helps AlphabetGoogle and Meta platforms designs custom AI processors and recently landed a third major customer, Reuters identified: TikTok parent company ByteDance.
Broadcom is also a market leader in virtualization software, thanks to its acquisition of VMware last year. Virtualization enables companies to manage and utilize IT infrastructure more efficiently by dividing physical hardware into multiple virtual systems. This allows a single physical server to run multiple operating systems and applications simultaneously.
Since the acquisition, Broadcom has simplified VMware’s portfolio, reducing the number of product SKUs from 8,000 to four core offerings. The company is also transitioning all of its virtualization products to a subscription model. Going forward, Broadcom is focused on upselling customers with VMware Cloud Foundation, a hyperconverged infrastructure (HCI) solution that brings together virtualized compute, storage and networking. Forrester Research recognized VMware as a leader in the HCI market last year.
Broadcom reported strong financial results in the second quarter, beating expectations on both the top and bottom lines. Revenue rose 43% to $12.5 billion on strong demand for AI infrastructure and VMware’s virtualization products. Revenue rose 12% excluding the contribution from VMware. Meanwhile, non-GAAP net income rose 20% to $1.10 per diluted share.
Wall Street analysts expect adjusted earnings per share to grow 24% per year through fiscal 2025 (ending October 2025). That consensus estimate makes the current valuation of 36.9 times adjusted earnings relatively reasonable. From that price, Broadcom could return 50% over the next 12 months, but investors buying shares today should have at least a three-year timeline.
Celsius: 112% implied increase
Celsius develops and sells energy drinks through major retail channels in the United States. It has achieved strong brand recognition in its core geography, and the company is using that momentum to expand globally. It began selling products in the United Kingdom, Ireland and Canada in the first half of 2024, and sales are expected to begin in Australia, New Zealand and France in the second half of 2024.
Celsius is the third most popular energy drink in the United States. The company gained 139 basis points of market share last year. Meanwhile, leading brands Red Bull and Monster PotionMonster Energy gained 37 basis points and lost 134 basis points respectively during the same period. Simply put, Celsius is gaining ground on the leaders in the sector.
The company has achieved that success by marketing its beverages as “the better alternative to traditional energy drinks, without the sugar.” Celsius has thermogenic properties, meaning it increases metabolism and raises body temperature. It’s clinically proven to increase calorie burn during exercise, so the brand is popular in gyms and fitness centers.
Celsius reported record financial results in the second quarter. Revenue rose 23% to $402 million, gross margin expanded 320 basis points and GAAP net income rose 65% to $0.28 per diluted share. CEO John Fieldly told analysts, “We believe we are well positioned to capture greater share of the category dollar.”
However, Wall Street expects the company’s earnings to grow 15% annually through 2026. That estimate makes the current valuation of 39x earnings quite expensive. So I doubt Celsius can deliver triple-digit returns in the coming year, and I’d keep the stock on my watchlist for now.
Should You Invest $1,000 in Broadcom Now?
Before buying Broadcom stock, here are some things to consider:
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Randi Zuckerberg, former chief marketer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine holds positions at Nvidia. The Motley Fool holds positions at and recommends Alphabet, Celsius, Meta Platforms and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Stocks You Need to Buy Before They Surge 50% and 112%, According to Some Wall Street Analysts (Hint: Not Nvidia) was originally published by The Motley Fool
