Stock splits continue to be one of the major themes in the market this year. Shoemaker Deckers Outdoor (NYSE:DECK) just announced a six-for-one stock split that will take effect on Sept. 9 this year. It follows a 10-for-1 stock split by microchip developer Broadcom (NASDAQ:AVGO) on July 15 that lowered its share price to $170 a share from $1,700.
It’s easy to see why stock splits are popular. While they don’t change the valuation or fundamentals of a stock, they make them a lot more affordable for investors to purchase shares, particularly individual retail investors. In recent months, Walmart (NYSE:WMT), Nvidia (NASDAQ:NVDA) and Chipotle Mexican Grill (NYSE:CMG) have each split their stocks to make them more attractive and palatable to investors.
Here is the stock split spotlight: The next three names are potential stock splits that could follow Nvidia’s lead.
Costco Wholesale (COST)
Costco Wholesale’s (NASDAQ:COST) stock has quietly gotten expensive. Having risen 44% over the last 12 months, Costco’s share price is now sitting at $815 a share. Not only has the share price gotten steep, but the stock’s valuation is also high right now, trading at 46 times future earnings estimates. That’s about double the average price-earnings (P/E) ratio of 25 among stocks listed in the benchmark S&P 500 index.
While a stock split won’t fix the valuation of COST stock, it could certainly help bring the share price back down within reach of most investors. Stock splits are not new to Costco. The company has undergone two splits in the past. However, it’s been 24 years since the last split occurred in January 2000. The length of time might give management further reason to split the stock and bring the share price lower.
Costco Wholesale remains a long-term winner for investors, with the stock having risen nearly 200% in the last five years.
Super Micro Computer (SMCI)
While market forces have brought its share price lower in recent weeks, Super Micro Computer (NASDAQ:SMCI) stock is still pricey, trading at nearly $700. That’s more than double the $285 per share that the stock was at on the first trading day of the year in January. The meteoric rise of SMCI stock has also pushed its valuation up to a lofty P/E ratio of 39, meaning the stock has gotten expensive.
The good news is that Super Micro Computer’s share price has come down 43% from its 52-week high of $1,229 reached in March of this year. That said, a stock split would help to make SMCI stock more attractive, especially to mom-and-pop investors. Nvidia split its stock in June when it was not much higher than where Super Micro Computer stock is now. Demand for Super Micro Computer’s servers that run AI models and the company’s share price are expected to keep rising, making an eventual stock split look inevitable.
Year-to-date, Super Micro Computer stock has risen 148%.
ServiceNow (NOW)
The stock of ServiceNow (NYSE:NOW) just popped nearly 15% after the software company reported strong financial results for the year’s second quarter, driven by artificial intelligence (AI) demand. The success has lifted ServiceNow’s stock up by 44% in the last 12 months and is now trading near a 52-week high of $850. The stock’s valuation is sky-high at about 90 times future earnings estimates.
ServiceNow’s stock has risen nearly 3,000% since its 2012 initial public offering (IPO). And the stock has never split. That might change with the share price approaching $1,000. As with Super Micro Computer, ServiceNow continues to be a main beneficiary of the AI trade. That doesn’t look likely to change anytime soon as the company’s just-released earnings reinforce the company’s role within the AI sector.
On the date of publication, Joel Baglole held long positions in DECK and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
