One of the more interesting developments for investors over the past few years has been a rebirth in the popularity of stock splits. With the advent of no-cost and low-cost stock trading, investors are no longer obligated to buy stocks in round lots of 100. Yet with prices often in the hundreds or even thousands of dollars, some people with smaller monthly investing budgets still prefer lower-cost stocks.
Because of that preference, stock splits have soared in popularity. In 2022, a laundry list of investor-favorite companies split their shares. These included the following, in order by date:
- Amazon completed a 20-for-1 split payable June 3, 2022.
- DexCom finished a 4-for-1 split payable June 10, 2022.
- Shopify executed a 10-for-1 split payable June 28, 2022.
- Alphabet decreed a 20-for-1 split payable July 15, 2022.
- Teslaimplemented a 3-for-1 split payable Aug. 24, 2022.
- Palo Alto Networks enacted a 3-for-1 split payable Sept. 13, 2022.
Seasoned investors know that stock splits don't change the value of the underlying business, so it's easy to dismiss a stock split as superfluous. However, the star power of this list illustrates that companies recognize the importance of keeping shares affordable for the average investor. Furthermore, given the general resurgence on Wall Street so far in 2023, several popular companies have stock prices that are now sufficiently high enough to consider a lower share price. Here are three companies that could well have stock splits in their future.
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1. NVR
It's been a tough couple of years for the housing industry. Rising interest rates, labor shortages, lingering supply chain constraints, and rising material costs are just a few of the issues faced by home builders. Yet amid those challenges, NVR (NVR 0.24%) stock remains near an all-time high.
So what's fueling the homebuilder's rise? Historically high mortgage rates are keeping many homeowners in place, fueling a new home shortage. There were roughly 1.1 million existing homes for sale to close out May, compared with 1.9 million at the same time in 2019, according to a report in The Wall Street Journal, helping illustrate the magnitude of the shortfall. This has resulted in robust demand for new construction, benefiting the largest homebuilders, including NVR.
Furthermore, the company uses land purchase agreements to acquire finished lots from third-party developers. The deals are structured so that NVR only takes possession of the land when it has a contracted buyer and is ready to build, which helps minimize its financial obligations while also helping reduce its risk.
NVR's history of solid results in a variety of economic environments has driven the stock up 39% thus far in 2023. Over the past 10 years, however, the example is even more pronounced. Revenue has surged 83%, while net income is up 315%. This has driven NVR's soaring stock price, which is up roughly 591%, recently clocking in near $6,411 as of Monday's market close -- a price that's just begging to be split.
2. MongoDB
Like many technology stocks, MongoDB (MDB -1.25%) was hammered by the downturn, but the macroeconomic headwinds are easing, helping the stock rebound. A pioneer of the cloud-native database, Atlas -- its fully hosted database-as-a-service solution -- not only works with legacy rows and columns but can also handle video and audio files, social media posts, and even entire documents, offering users much more robust database functionality. It also provides a vast repository of generative artificial intelligence (AI) tools.
CEO Dev Ittycheria recently laid out the magnitude of the opportunity for MongoDB: "We believe the recent breakthroughs in AI represent the next frontier of software development. The move to embed AI in applications requires a broad and sophisticated set of capabilities while enabling developers to move even faster to create a competitive advantage." As a result, he believes the company is "well positioned to benefit from the next wave of AI applications in the years to come."
MongoDB has generated enviable growth even during the worst downturn in over a decade. In its 2024 first quarter, ended April 30, its revenue climbed 29% year over year, while adjusted EPS soared 180%. Perhaps more telling is the company's expanding customer base, as it added 2,300 customers during the quarter, up 22% year over year, the highest number of additions in more than two years.
MongoDB's solid track record of operating results and its growing opportunity has driven the stock up 108% so far this year. The cumulative results since the company's public debut in late 2017 are even more striking. Revenue has soared 1,300%, sending its stock price up 1,170%, with the stock price above $408 as of Monday's market close. MongoDB's growth spurt is likely to continue, suggesting a stock split could be in the cards.
3. Microsoft
Microsoft (MSFT -0.23%) pioneered the ubiquitous Windows operating system that's a household name today while also bundling the Office suite of productivity tools. Since then, the company has become one of the leading providers of enterprise software-as-a-service (SaaS) applications for enterprise, a cloud computing titan, and could soon be adding to its growing video game aspirations.
Yet it's Microsoft's recent moves in AI that have investors most excited. The company's $13 billion investment in ChatGPT parent OpenAI and integration of generative AI tools in its search engine kicked off the current AI arms race among tech companies. Furthermore, the company's "big three" cloud infrastructure platform, Azure, provides the perfect venue to offer AI to the masses.
For its fiscal 2023 third quarter, ended March 31, Microsoft's revenue grew 7% year over year while EPS climbed 10% -- even in the face of continuing macroeconomic headwinds. However, accelerating demand for AI could boost its results from now on.
Microsoft has a long track record of consistent growth, but excitement regarding AI has driven the stock up 44% so far in 2023. The results are even more compelling when viewed over the past decade. Revenue has grown 185%, driving net income up 249%. This has fueled Microsoft's rising stock price, up more than 855%, with a price of $346 as of Monday's market close.
The company hasn't split its shares since 2003, but Microsoft's price spike in recent years may just be the catalyst the company needs to initiate its next stock split, which could happen before the year is out.
Every rose has its thorns
While these stocks outperformed the broader market indexes over the past 10 years, only one is what I might call "cheap." NVR, Microsoft, and MongoDB are selling for 2, 10, and 25 times next year's sales when most experts agree a reasonable price-to-sales ratio is between 1 and 2, making NVR the bargain of the bunch.
That said, and as illustrated, Microsoft and MongoDB also have a strong record of long-term performance, which explains why they are deserving of a premium.
Suzanne Frey, an executive 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. Danny Vena has positions in Alphabet, Amazon.com, Microsoft, MongoDB, Shopify, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon.com, Microsoft, MongoDB, NVR, Palo Alto Networks, Shopify, and Tesla. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
As an enthusiast and expert in the financial markets, particularly in stock investing and market trends, I bring a wealth of knowledge and experience to the table. Over the years, I have closely followed and analyzed various investment strategies, market movements, and financial instruments. My insights are grounded in a deep understanding of economic principles, company valuations, and the dynamics that drive stock prices.
Now, diving into the provided article on the resurgence of stock splits and the potential candidates for future splits, let's break down the concepts and companies mentioned:
1. Stock Splits and Their Popularity:
The article highlights the resurgence of stock splits as an interesting development for investors. With the availability of no-cost and low-cost stock trading, investors can now buy stocks in any quantity, making high-priced stocks more accessible. The popularity of stock splits is emphasized by the list of companies that executed splits in 2022.
2. Companies that Recently Split:
The article provides a list of companies that underwent stock splits in 2022, including Amazon, DexCom, Shopify, Alphabet, Tesla, and Palo Alto Networks. The splits ranged from 3-for-1 to 20-for-1, contributing to making shares more affordable for a broader investor base.
3. Understanding Stock Splits:
The article reminds readers that stock splits don't alter the fundamental value of a company. While seasoned investors may dismiss them as superfluous, the article suggests that the star power of companies opting for splits indicates a recognition of the importance of keeping shares affordable.
4. Potential Companies for Future Splits:
The article then identifies three companies that could be potential candidates for future stock splits:
a. NVR:
- A homebuilder that has faced challenges in the housing industry.
- High stock price attributed to historically high mortgage rates, leading to a new home shortage.
- NVR's strategy involves land purchase agreements, minimizing financial obligations and risks.
- Strong financial performance with revenue up 83% and net income up 315% over the past 10 years.
b. MongoDB (MDB):
- A technology stock that faced challenges but rebounded.
- Offers a cloud-native database solution, Atlas, with AI capabilities.
- CEO emphasizes the company's position to benefit from the next wave of AI applications.
- Robust growth with a 108% increase in stock price so far in the year and a cumulative 1,170% since its public debut.
c. Microsoft (MSFT):
- Microsoft's evolution from a Windows operating system provider to a cloud computing titan.
- Recent focus on AI, including a $13 billion investment in OpenAI.
- Strong financial performance, with a 44% increase in stock price in 2023 and 855% increase over the past decade.
- Speculation on a potential stock split due to the recent price spike.
5. Financial Metrics and Comparisons:
The article compares the current stock prices of NVR, MongoDB, and Microsoft, highlighting their price-to-sales ratios. NVR is noted as the "bargain" among the three, with lower valuation based on the price-to-sales ratio.
6. Closing Thoughts and Disclosures:
The article concludes by acknowledging the outperformance of these stocks compared to broader market indexes. It notes the potential "thorns" in the form of higher valuation for Microsoft and MongoDB. Disclosures reveal the positions of the author in various stocks mentioned and The Motley Fool's positions and recommendations.
In summary, the article provides a comprehensive analysis of the resurgence of stock splits, recent examples, and potential future candidates, backed by insights into the financial performance and market dynamics of the mentioned companies.
