3 Stocks That May Be The Next To Delight Investors With A Split

In March 2024, Chipotle Mexican Grill (NYSE:CMG) announced a significant 50-for-1 stock split. This means current shareholders will receive 49 additional shares for each share they own. Stock splits are often misunderstood. While they increase the number of shares owned, they do not increase the value of the investment since the split adjusts the share price proportionally. 

Such splits are generally seen as positive by the market; they can lower the share price, making the stock more accessible and potentially widening the investor base by increasing liquidity. 

The primary reason companies undertake stock splits is psychological. High share prices can deter smaller investors from buying stock, even though fractional shares are available on certain trading platforms. Reducing the share price through a split can make the stock seem more accessible. 

For companies like Chipotle, if investors liked the stock before the split, they should equally like it afterwards. This can lead the stock to climb back to its pre-split price over time, assuming the company continues to impress investors and deliver sustained growth. That, along with dividends, is where real value can be created for long-term investors. 

Following Chipotle’s announcement, here are three companies that could be potential candidates for a stock split, given their high share prices and strong market performance 

Costco Keeps On Beating Expectations 

One reason companies consider a stock split is if the average trading volume declines. However, this doesn’t seem to be an issue for Costco (NASDAQ:COST), as its trading volumes are on par with, if not slightly higher than average. 

Costco has been in the news for selling hundreds of millions of dollars’ worth of gold bars per quarter and recently, subscriptions to weight loss programs. While these initiatives are noteworthy, they merely complement the core reasons investors are drawn to Costco. Each month, the company consistently surpasses sales expectations with its release of monthly sales figures. 

Despite this, Costco’s projection of 9% earnings growth over the next 12 months, down from 15% in the previous four quarters, has led some investors to consider the stock overpriced at 45x forward earnings. 

A potential catalyst for Costco could be an increase in its membership fee. The company made it clear that an increase is coming, just not in 2024. Once implemented, it will enhance profitability given Costco’s historical membership retention rate of over 90%. The higher membership fee directly benefits the bottom line and could shift analyst sentiment positively, potentially paving the way for the company’s first stock split since 2000.   

Lululemon Continues To Define The Athleisure Category 

Arguably, Lululemon (NASDAQ:LULU) seemed a more likely candidate for a stock split before its shares fell by 19% over the past month. The negative sentiment started after the company’s mixed earnings release on March 21, 2024. Although the report was robust, as expected, Lululemon issued cautious guidance, reflecting a shift toward a more discerning consumer mindset. Nevertheless, the company remains a leader and innovator in the athleisure category — a market it essentially created. 

Currently, LULU is trading at a forward P/E of approximately 25x, which is above the S&P 500 average of 22x but less stark than previously. Trading volumes have risen over the last month, largely due to an increase in short interest rather than investor confidence. The key question now is whether buyers will return to capitalize on the recent dip in price. 

Booking Has A Long AI-Fueled Runway 

Analysts predict that traditional travel agents may become obsolete within the next decade, primarily due to the rise of companies like Booking Holdings (NASDAQ:BKNG). The availability of seemingly infinite information online, alongside the ease of planning and booking trips via personal devices, has simplified travel logistics significantly. Additionally, the integration of AI into various services by Booking is set to further streamline this process. 

But will BKNG stock split? At 20 times earnings, it is fairly priced and volume is average. But the stock trades for over $3,600 per share. And the company performed a reverse stock split (the opposite of a stock split) in 2003. However, even if you factor in that 1-for-6 move, the stock still trades at over $600 per share.