Volatility is something that is inescapable for Wall Street investors. With the exception of 2024, we have witnessed the Dow Jones Industrial Average, S&P500And Nasdaq Composite Since the beginning of this decade, there has been a swing between bear and bull markets in successive years.
During periods of heightened volatility and uncertainty, professional and casual investors typically turn their attention to companies with a long track record of outperformance. Companies that have implemented stock splits in the past three years are certainly suitable for this.
Investors are rightly leaning toward stock splits
A “stock split” is an event that allows a publicly traded company to change its stock price and the number of shares outstanding. It is a purely cosmetic change in the sense that adjusting a company’s stock price and number of shares by the same factor has no impact on its market capitalization or operating performance.
Forward-stock splits are intended to make a company’s shares more nominally affordable to ordinary investors who may not have access to fractional share purchases from their online broker. Meanwhile, reverse stock splits are intended to increase a company’s stock price to ensure it meets minimum listing requirements on a major stock exchange.
By all accounts, most investors are looking for companies that implement long-term stock splits. A publicly traded company with high-flying stock often has well-defined competitive advantages and in many cases has outsmarted the competition. In other words, the stock split down the road can act as a beacon to point investors to Wall Street’s top companies.
Since the middle of 2021, nearly a dozen top companies have implemented or announced a forward split, including companies like Nvidia, AmazonAnd Alphabet. Earlier this week, another branded company announced its intention to join this elite group of stock splits.
Walmart and Chipotle Mexican Grill have claimed the stock split spotlight in 2024
After a relatively quiet 2023, in which only a few top companies announced stock splits (e.g. Monstrous drink And Novo Nordisk), 2024 has started with a bang.
End of January retail titan Walmart (NYSE:WMT) announced plans to do a 3-for-1 split. The purpose of this split, Walmart’s first in nearly a quarter century, was to help its associates participate in the company’s Associate Stock Purchase Plan. By lowering the share price by a factor of three, it becomes easier for employees to buy whole shares.
Walmart’s long-term outperformance — and the reason its stock price earned a 3-to-1 split that occurred on Feb. 26 — can be explained by its size. The company’s deep pockets allow it to purchase products in bulk and at a lower cost than its peers. The company continually undercuts supermarket chains and local stores on price, which has a clear appeal to consumers.
Walmart’s stores also have a wide selection of stock-keeping units (SKUs). This not only helps the company sell higher-margin discretionary goods, but it also encourages consumers to make Walmart their one-stop shopping destination.
The other superstar taking center stage in 2024 is the fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG). In mid-March, Chipotle’s board announced plans to implement a 50-for-1 forward split that would become effective on June 26 (assuming shareholders approve the split at the company’s annual meeting in June) .
Like Walmart, Chipotle is pursuing a split to make its nearly $3,200 per share stock more accessible to its employees. If shareholders give Chipotle the green light, its shares will trade closer to $64 by the end of June.
The more than 14,300% increase in shares of Chipotle Mexican Grill since its initial public offering in January 2006 reflects consumers’ willingness to pay more for healthier food. Additionally, the company’s limited menu helps staff prepare meals quickly, ensuring timely delivery to in-store and drive-thru (“Chipotlane”) customers.
But it’s time for Walmart and Chipotle to make the move, because there’s another high-profile company ready to share the stock split spotlight.
Say hello to Wall Street’s latest stock split
On May 14, consumer electronics juggernaut Sony group (NYSE: SONY) threw his hat into the ring and announced his intention to perform a 5-for-1 forward split.
Although the record date of the stock split is set for September 30, the effective date will be slightly different for the Japanese-listed shares and American Depository Receipts (ADR) in the US. While the shares in Japan will trade at a lower par value on October 1, the US ADRs have an effective date of October 8. When completed, this split will lower Sony Group’s U.S. shares from the $81 they closed on May 14 to around $16.
Most people are familiar with Sony because of its longstanding ties to the gaming industry. The company’s PlayStation 5 gaming console debuted in November 2020, so it’s not too surprising that unit sales haven’t been all that strong lately.
Fortunately, Sony has seen a healthy increase in PlayStation Plus revenue. PlayStation Plus is the company’s gaming subscription service that ranges from $10 per month to $160 per year depending on the subscription level. It allows subscribers to back up their saved game data to the cloud and participate in multiplayer games together with friends. The key point here is that subscription revenue generates predictable, high-margin revenue year after year.
But Sony Group has more to offer than just the PlayStation gaming console. For example, it is one of the main producers of image sensors used in next-generation smartphones. Including favorable exchange rates and imaging and sensing solutions, sales increased 14% in the company’s last fiscal year (ended March 31). With global smartphone sales expected to increase modestly this year, Sony should clearly benefit.
Wall Street’s newest stock fund also has a profitable movie entertainment segment. Sony Pictures achieved 9% revenue growth last year, with an increase in cinema releases paving the way for this growth. Sony Pictures is also working with private equity firm Apollo Global Management and is considering making a strong bid for the traditional media company Big global. The two companies recently sent a non-binding offer to Paramount’s board that would take the company private at a valuation of $26 billion, including the assumption of debt.
The icing on the cake for Sony Group and its shareholders is that in addition to the 5-for-1 share split, the company has also announced a share buyback authorization. Up to 30 million shares can be repurchased in the coming year, which amounts to almost 2.5% of the company’s outstanding shares (based on the number of shares outstanding after the upcoming split).
For proven companies with stable or growing net income, buybacks can increase earnings per share (EPS) and make a company’s stock more attractive to fundamentally-oriented investors.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has positions at Alphabet and Amazon. The Motley Fool holds positions in and recommends Alphabet, Amazon, Chipotle Mexican Grill, Monster Beverage, Nvidia and Walmart. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
Move Over, Walmart and Chipotle: Wall Street Has a New Stock Split was originally published by The Motley Fool
