We recently published a list of 10 Stocks That May Be Splitting Soon. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against the other stocks that may be splitting soon.
Understanding Stock Splits
A stock split is when a company literally splits its stocks – it divides its existing shares into multiple new shares. This increases the number of shares outstanding without changing the company’s overall value while making the stock more affordable and accessible to smaller investors.
A company’s board of directors determines the ratio of a stock split. This can range from a common 2-for-1 split, and go as far as 100-for-1, or more. For instance, in a 2-for-1 split, each existing share is divided into two new shares. The price per share is reduced by half, but the total market capitalization remains unchanged. So, a stock split can increase liquidity and potentially attract more investors, by giving 2 shares valued at $50, instead of 1 at $100, and the company’s market cap is not impacted.
As the share price adjusts downward, dividends per share will also be adjusted to maintain the same total dividend payout. Similarly, all things tied to the share price are adjusted according to the split. However stock splits are non-dilutive, so existing shareholders’ voting rights remain unchanged.
Stock splits aren’t just beneficial to small investors trying to buy shares in big companies, they can also benefit companies by allowing them to repurchase shares at a lower price. But in one way or another, the eventual goal is to enhance a stock’s appeal to investors and make it more accessible to retail or individual investors.
At the end of the day, a stock split does not inherently create additional value for a company, a good company remains a good company after a stock split. Similarly, a bad company remains a bad company. A temporary reduction in share price followed by higher investor interest might cause the stock to surge in the short run, but no meaningful impact should be expected in the long run.
Experts Weight In on The Market Situation Right Now
We’ve seen a range of high-profile stock splits in 2024, especially in the semiconductor space. They seem to be the new cool thing to do for every company. However, these moves should be treated as no more than just making shares more accessible to smaller investors, and value investors should focus on fundamentals when they’re contemplating their next best idea.
The markets have been on a wild ride, all thanks to AI. The valuations have gotten out of hand, but we’ve also seen some corrections. Analysts are expecting earnings growth of 15% in 2025 along with rate cuts of up to 225 basis points. The Fed is expected to deliver its first cut in September after hiking interest rates constantly and holding them higher for longer. Jeff Krumpelman, the chief investment strategist at Mariner Wealth Advisors, and Julie Biel, the chief market strategist at Kayne Anderson Rudnick, recently appeared together on CNBC to discuss these dynamics and both had similar but contrasting opinions.
Krumpelman expressed optimism, citing strong fundamentals and improving economic indicators, particularly inflation. He believes we’re not in a recessionary scenario and sees potential for the S&P 500 to reach 6,000 by mid-2025, driven by solid earnings growth, healthy guidance, and projected GDP growth of 1.5% to 2.0%. Here’s what he said:
“We look at the individual stocks, we find a broadening market, and we find general health in terms of earnings growth and valuation. So, we’re optimistic and constructive.”
Biel, on the other hand, raised concerns about potential risks related to high valuations making stocks more fragile. She emphasized that the last time the market was this optimistic was back in 1984, just once in modern history. Biel remained cautiously optimistic and pointed to the $1 trillion in credit card debt and rising delinquency rates.
Most successful companies have a history of stock splits, but their share prices consistently return to levels where another split is warranted. Yet it is a widely practiced phenomenon and investors globally anticipate such moves from big companies to improve trust. In this context, we’re going to talk about the top 10 stocks that may be splitting soon.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer in a warehouse aisles, browsing the wide range of branded and private-label products.
Costco Wholesale Corporation (NASDAQ:COST)
Share Price as of August 30: $886.63
Number of Hedge Fund Holders: 71
Costco Wholesale Corporation (NASDAQ:COST) is an American multinational corporation that operates a chain of membership-only big-box warehouse club retail stores, known for its bulk-sized products, low prices, and wide selection. It offers a variety of goods, including groceries, electronics, clothing, household items, and more.
The company intentionally creates value for members by delivering lower prices and reducing costs wherever possible. New Kirkland Signature items and price reductions on existing items further enhance value.
The company’s strong sales growth in FQ3 2024 was driven by merchandising teams identifying high-quality items that resonated with members. Members purchased more discretionary items and core merchandise, bakery sales also thrived with new items.
Since the end of FQ3, there was an opening in Loomis, California, and one in the seventh building in China in the Nanjing market. For the remainder of 2024, 9 openings in the US, 2 in Japan, and 1 in Korea are planned.
The company’s curated marketplace, Costco Next, is growing steadily, with 8 new vendors in FQ3, bringing the total to 75. App downloads increased by 32%, and site traffic increased by 16%. The average order value also rose 8%.
Net sales increased 9.1% for this quarter. Executive members now represent over 46% of paid members and 73.1% of worldwide sales. The year-over-year improvement was 9.07%, with a revenue of $58.52 billion and earnings per share of $3.78.
The company’s stock price also soared in a year with a 63.51% rise. Costco Wholesale Corporation (NASDAQ:COST) has engaged in 2 stock splits previously, and this rise in share price might just bring another one.
It expanded its partnership with Uber, allowing consumers to order from Costco through Uber Eats in Canada and 17 US. states. Management says this partnership will be expanded to more international countries soon. Such partnerships reflect optimism in the company’s future growth.
71 hedge funds hold long positions in the country as of June 30. The largest stake has a position of $2,512,487,521, held by Fisher Asset Management.
ClearBridge Sustainability Leaders Strategy stated the following regarding Costco Wholesale Corporation (NASDAQ:COST) in its Q2 2024 investor letter:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
Overall COST ranks 5th on our list of stocks that may be splitting soon. While we acknowledge the potential of COST as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than COST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.