Investors love a good stock split. There’s something about seeing a lower grade on a top company’s stock that can make it feel like a bargain. While the lower price is somewhat illusory because it’s an equally smaller slice of the pie, stock splits generally indicate a large share. When a price gets so high that the stock can look inaccessible, there’s usually an excellent company behind it, and the market recognizes that.
Super microcomputer (NASDAQ:SMCI) And Chipotle Mexican Grill (NYSE: CMG) are two incredible stock splits that have made investors rich over time. Should you buy them today?
Can Super Micro Computer still be a winner, up 15% since its stock split?
Keith Noonan: Super Micro Computer has become a battlefield in the field of artificial intelligence (AI). Although the company’s revenue and profits have soared thanks to AI-driven demand for the company’s powerful rack servers, some investors are betting the momentum will be relatively short-lived. Complicating matters further, the company postponed its 10-K filing shortly after the release of a bearish report from short seller Hindenburg Research.
Super Micro Computer completed its 10-for-1 stock split on October 1, and the company’s stock price is now up about 15% from its pre-split closing price. On the other hand, the stock price is still down about 60% from the high it reached in March.
Some bears have made the argument that Supermicro’s core business is about assembling off-the-shelf parts – and that margins will continue to deteriorate because the core components of the server systems are not proprietary. Graphics Processing Units (GPUs) of Nvidia and hardware from other companies are central to the value proposition of Supermicro’s rack servers, and the company’s gross margins could come under pressure if players in the AI ​​space have other options to secure processing and networking technologies .
To differentiate its servers, Supermicro looked to its liquid cooling technologies. The company recently delivered some good news on that front. In fact, most of Supermicro’s stock gains post-split have come from the news that the company has now shipped more than 100,000 GPUs equipped with its own liquid cooling technologies.
Even after recent gains, Supermicro’s shares are still valued at just 14 times this year’s expected earnings. After last year’s explosive sales and earnings growth, the company’s relatively low earnings numbers reflect market sentiment that is questionable about the company’s ability to weather cyclical downturns. But the stock could deliver big returns if the AI ​​investment cycle is at an earlier stage than some predict.
For risk-tolerant investors looking for AI stocks with potentially explosive upside, Super Micro Computer could be a valuable addition to the portfolio.
Chipotle Mexican Grill: 6,460% increase
Jennifer Saibil: Investors love Chipotle stock. The company is a leader in the field of fast-casual dining and has guaranteed growth and profit for years. It has weathered the pandemic with barely any impact, and it is similarly floating through inflation.
Chipotle’s fresh, healthy food at an affordable price resonates with its affluent demographic, and the company has raised prices to offset rising costs without limiting demand. Revenue rose 18.2% year over year in the second quarter of 2024, driven by comparable store sales of 11.1%, and earnings per share (EPS) increased from $0.25 to $0.33. The operating margin increased from 17.2% to 19.7%.
Chipotle split its shares in June in a 50-to-1 split, one of the largest ever on the New York Stock Exchange. The stock price was up well into the four digits before the split, which is the first, and has risen since the 2006 IPO.
Stocks usually gain momentum heading into a split as investors get excited, and sometimes they lose some of it after the split before picking up again. However, Chipotle has had some other recent news that the market wasn’t too happy about, and that is the departure of its superstar CEO, Brian Niccol.
Chipotle wasn’t always a golden stock, and it had some serious problems before Niccol came on board in 2017. Investors regard him as a savior of sorts Yum! To noticeTaco Bell before achieving a similar turnaround at Chipotle. That’s why he has now been arrested Starbucksthat urgently needs its own turnaround.
That news followed the announcement that former CFO Jack Hartung is retiring, leaving a void in management. It is not difficult to understand why the market reacted negatively.
But all is not lost. COO Scott Boatwright rose to interim CEO, and Hartung will stay on as the company figures out its next steps. Even if Niccol was largely responsible for creating the branding and processes that got Chipotle to where it is today, they’re not going anywhere.
Management still sees the potential to nearly double the number of North American stores to 7,000, while also expanding internationally. Chipotle just opened its first store in Dubai through a recent franchise partnership.
Chipotle has a working formula and plenty of room for expansion, and investors can still buy into its growth story.
Should You Invest $1,000 in Super Micro Computer Now?
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Jennifer Saibil has no positions in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill, Nvidia and Starbucks. The Motley Fool recommends the following options: Short December 2024 put $54 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
2 Stock Splits That Surged 5,000% to 6,390%: Should You Buy Them Today? was originally published by The Motley Fool
