Following Tesla’s stock split, this widely held stock is expected to be next to split
It’s been an unforgettable year on Wall Street…for all the wrong reasons. The wide base S&P500 and technology driven Nasdaq Compound have entered bearish territory; the US economy has recorded consecutive quarters of declining gross domestic product (i.e. a technical recession); and consumers are facing the highest rate of inflation in over 40 years. As if that weren’t enough, Russia invaded Ukraine in February, putting even more pressure on already struggling global energy supply chains.
Yet despite this seemingly endless parade of bad news in 2022, the investment community has found its light in the form of stock splits.
A “stock split” allows a publicly traded company to change its stock price and the number of shares outstanding without affecting its market capitalization or operations. A forward stock split gives companies the opportunity to make their shares more affordable to ordinary investors who would otherwise not have access to fractional stock purchases with their online broker. Meanwhile, reverse stock splits can boost a company’s share price to ensure it maintains minimum listing standards on major US stock exchanges.
Tesla’s stock split is now complete
More than 200 companies have announced and passed stock splits since the start of the year. Perhaps none has garnered more interest than the electric vehicle (EV) maker You’re here (TSLA -2.69%).
In June, Tesla announced plans to conduct a 3-for-1 stock split. With shareholder approval secured at the company’s August 4 meeting, the Tesla stock split – its second in as many years – became official on August 25, 2022. While retail investors without access to buying fractional shares would have had to save around $900 to buy a single stock earlier this week, those same buyers can now buy a share of Tesla for around $300.
The euphoria surrounding stock splits (especially forward stock splits) has to do with the realization that a company wouldn’t split its stock if it didn’t do something right and wasn’t recognized by Wall Street. In Tesla’s case, its stock price surge over the past decade is a reflection of it being the first automaker in more than five decades to build itself from the ground up. mass production. Even with shortages of semiconductor chips and general parts, this year is expected to mark the first time the company has reached 1 million electric vehicles produced.
Tesla also pushed decisively in the earnings column. After many years of relying on sales of renewable energy credits to other automakers to boost its bottom line, the sale of electric vehicles has been enough to bring Tesla firmly to recurring profitability.
Although Tesla remains risk-ridden, shareholders can remain hopeful that a lower nominal share price could spark additional interest in the innovative electric vehicle maker.
This exceptionally popular stock could be the next to split its shares after Tesla
With Tesla’s stock split now complete, the $64,000 question becomes, “What’s the next publicly traded company?” While there are dozens of stocks with high prices that would likely benefit from making their shares more affordable to mainstream investors, there is one exceptionally popular company that stands out as the most logical choice to split next. I’m talking about the warehouse club, Wholesale Costco (COST -3.44%).
When the closing bell rang on August 23, a single Costco share would cost an investor about $542. That’s a big increase from the roughly $40 per share investors paid for a single Costco share in 2009. In the past 36 years, Costco has only done two stock splits (in 1993 and 2000).
One of the most logical reasons for Costco to seriously consider a stock split is the percentage of retail investors who own a stake in the company. Even though 69% of its outstanding shares are held by institutional investors, according to data from the latest 13F filings, Costco is the 87th most-held stock on the online investing platform. Robin Hood. Robinhood is known for attracting retail investors, and Costco is the only stock with a nosebleed stock price to make it into the top 100 most-held companies on the platform.
To add to this point, Costco’s average daily trading volume has declined as its stock price has skyrocketed. While Costco’s average daily trading volume ranged mostly from 4 million to 8 million shares for most of the 2000s, its average daily trading volume has been closer to 1.5 million to 2.5 million in course of the last decade. A nominal discount to its share price could revive interest in the company among ordinary investors.
Crucially, Costco Wholesale continues to fire full steam from an operating perspective, suggesting that its already lofty share price could rise further in the long term.
This is a company that regularly uses its size to its advantage. By buying merchandise in bulk, Costco is almost always able to reduce the unit price it pays. This allows the company to pass the savings on to its members and ultimately lower prices from traditional grocery chains and mom-and-pop stores. In an environment of soaring inflation, consumers are more likely than ever to seek out Costco for perceived bargains.
Additionally, the company’s membership model has proven to be a way to make money. The more than 116 million people and businesses paying annual fees to Costco, as of May 2022, provide the company with high-margin revenue that it uses to maintain the prices of its grocery/non-discretionary products in below its competitors. Costco wisely understands that the biggest battle is attracting shoppers to its stores. Once there, it’s not too difficult to get them to spend money on higher-margin discretionary items.
If there’s one widely held stock that’s a perfect fit for the next split stock after Tesla, it’s Costco Wholesale.
Sean Williams has no position in the stocks mentioned. The Motley Fool fills positions and recommends Costco Wholesale and Tesla. The Motley Fool has a disclosure policy.