The resurgence of stock splits has been one of the most notable market trends in recent years. Companies generally embark on this course of action after years of consistently strong business and financial performance have driven the stock price into the stratosphere. While a stock split does not change the intrinsic value of the company, it does make the shares more affordable to employees and the general public, a reason often cited by companies as the main reason behind the split.
However, investors should look at the robust underlying performance LED primarily to a stock split because consistently strong business performance is the best reason to own stocks.
It stands to reason, then, that companies that have recently announced or executed stock splits provide fertile ground for future profits. Let’s take a look at two companies that are ripe for the taking.
1. Nvidia
Artificial intelligence (AI) has been making headlines over the past year, and it’s easy to see why. Recent developments in this field, namely generative AI, can simplify a number of routine tasks, making employees more productive. Imagine systems that can prioritize emails and compose responses, quickly find and summarize documents related to a given topic, and generate presentations from available data – all from a few simple prompts.
Nvidia (NASDAQ: NVDA) is the leading provider of graphics processing units (GPUs) that support this revolutionary technology. When the AI revolution took off early last year, it sent demand for Nvidia processors to record highs, and it shows no signs of slowing down.
In the first quarter of fiscal 2025 (ending April 28), Nvidia posted its fourth consecutive quarter of triple-digit annualized revenue and profit gains. Record quarterly revenue of $26 billion rose 262% year over year, bringing earnings per share (EPS) to $5.98, up 629%. Management expects Nvidia’s growth spurt to continue, with second-quarter revenue reaching $28 billion, an increase of 107%.
To leave no doubt about it, it is the accelerated adoption of generative AI that is driving the results. Nvidia’s data center segment, which includes cloud computing and AI processors, posted record revenue of $22.6 billion, up 427%.
With the stock up 3,000% over the past five years, management has announced a 10-for-1 stock split that will take place in June. Nvidia also increased its dividend by 150% to $0.01 after the split. With a yield of 0.04%, this is certainly nothing to write home about, but it does set the stage for meaningful gains in the future, especially since it has a payout ratio of less than 3% of profits.
2. Chipotle Mexican Grill
It takes an extraordinary company to continue its growth during the worst period of economic contraction in more than a decade Chipotle Mexican Grill (NYSE:CMG) did just that. Despite the macroeconomic headwinds of recent years, the company grew comparable store sales (or “comps”) every quarter through early 2022. That’s a testament to the strong demand for Chipotle’s “integrity foods.”
The company started the year in style, with revenue growing 14% year over year to $2.7 billion, while diluted earnings per share of $13.01 rose 24%. Comps continued to perform well, up 7%, thanks to increased customer traffic and Chipotle’s unparalleled pricing power. Perhaps just as importantly, operating margins at the restaurant level continued their relentless increase to 27.5%, compared to 25.6% in the same period a year ago.
The robust growth is further fueled by the company’s wildly successful digital strategy, as Chipotle’s rewards program surpassed 40 million members earlier this year. Another major drive is the company’s Chipotlanes, the special drive-thru specifically for mobile orders. Management notes that locations with Chipotlanes generate higher sales and increase profit margins. As a result, digital orders are growing faster than total sales and represented 37% of total food and beverage sales in the first quarter.
Chipotle stock hit a new all-time high earlier this month. With gains of 375% over the past five years, management announced a 50-1 stock split, which will take place in June. Management called it “one of the largest stock splits in the history of the New York Stock Exchange.”
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Danny Vena holds positions at Chipotle Mexican Grill and Nvidia. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool has a disclosure policy.
The 2 Best Stock Splits to Buy Right Now by Hand were originally published by The Motley Fool
