2 stock splits that should happen right now
Few things get more attention from investors than stock splits. Shareholders see them as huge positive signs for a company, and while they don’t have a fundamental impact on a company’s value, they tend to signal that management has confidence in the future prospects. of the company.
We’ve seen a lot of stock splits so far in 2022. Tech giants Amazon.co.uk (AMZN -4.76%) and Alphabet (GOOGL -5.41%) (GOOG -5.44%) chose to do aggressive 20-to-1 splits to drive their stock price down into the $100-$200 range. Several other companies, including meme favorite GameStop (GME -3.19%)also decided to jump on the bandwagon.
Yet there are still plenty of companies that probably should have considered stock splits a long time ago. Peer pressure could finally make these high-growth leaders think about changing their long-held views on the subject. Here are my picks for two stock splits that should happen sooner rather than later.
1. Chipotle Mexican Grill
Mexican restaurant chain Chipotle Mexican Grill (GCM -2.13%) is an obvious candidate to split its shares. Its business has been strong lately, recovering from a period of weakness and showing long-term resilience that should lift its shares higher for years to come.
Investors have long awaited a spin-off from Chipotle. In the mid-2010s, its stock price reached $750 per share, but the company was still not interested in doing a stock split. In the years that followed, a series of incidents involving foodborne illness damaged Chipotle’s reputation, and its growth slowed dramatically, causing its share price to drop more than 60%. compared to the previous peak at the end of 2017.
In the years that followed, however, Chipotle got back on track. Its stock nearly hit $2,000 a share last year before the bear market in growth stocks dragged it lower. But Chipotle shares are up again now and recently trading above $1,600. As such, a split would be consistent with similar moves by giants like Amazon, Alphabet and You’re here (TSLA -2.69%).
Also, from a fundamental standpoint, Chipotle looks strong. In the face of rising inflation, the restaurant chain was able to pass on its higher costs to customers in the form of price increases without sacrificing too much growth. Same-store sales in its most recent quarter topped double digits, and rising margins helped Chipotle increase its year-over-year earnings by nearly 25%. With more store openings planned, Chipotle expects to maintain its growth trajectory in the future.
2. Reserve assets
The other stock that should be subject to a stock split is Reserve credits (BKNG -4.86%). The online travel portal has weathered one of the toughest times in the history of the leisure industry, and is now taking full advantage of pent-up demand from travelers eager to get out of their homes after the first two years of the COVID- 19 pandemic.
Booking Holdings’ stock price has been consistently higher than Chipotle’s for years. The stock topped the $1,000 per share mark in 2013, and hit $2,700 per share last year in anticipation of a rebound in travel before giving back some of those gains. Even after a significant pullback, it still earns around $2,000 per share.
As expected, Booking Holdings’ business returned to solid footing in 2022, even after the travel industry virtually shut down in 2020. Second-quarter revenue nearly doubled year-ago levels, bookings up 57% year over year. The company reversed a rare second-quarter 2021 loss with a huge profit, taking full advantage of the hot summer season.
Near-term trading strength will likely continue to drive Booking Holdings’ stock price higher — and that price is certainly already high enough to warrant the same kind of move Alphabet and Amazon have made.
Does it really matter?
Of course, nothing forces a company to split its shares. It has no impact on the fundamental business or its true value.
However, investors expect successful companies to do stock splits. There’s nothing about Chipotle or Booking Holdings to suggest they’ll run into any trouble down the road, so it seems increasingly likely that they’ll join their peers in making split announcements in the future. not too far.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Dan Caplinger has positions in Alphabet (A shares), Alphabet (C shares), Amazon and Booking Holdings. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Booking Holdings, Chipotle Mexican Grill and Tesla. The Motley Fool has a disclosure policy.