Few things get more investor attention than stock splits. Shareholders see them as huge positive signs for a company, and even though they have no fundamental impact on the value of a business, they do tend to signal that management has confidence in the company's future prospects.
We've seen a large number of stock splits so far in 2022. Tech behemoths Amazon.com (AMZN +1.25%) and Alphabet (GOOGL +0.20%) (GOOG +0.27%) chose to do aggressive 20-for-1 splits to bring their share prices down into the $100 to $200 range. Several other companies, including meme-crowd favorite GameStop (GME +6.33%), decided to jump on the bandwagon as well.
Yet there are still many companies that arguably should have been looking at stock splits a long time ago. Peer pressure might finally cause these high-growth leaders to 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 food restaurant chain Chipotle Mexican Grill (CMG 2.99%) is an obvious candidate to split its stock. Its business has been strong lately, recovering from a period of weakness and showing long-term resilience that should carry its shares higher for years to come.
Investors have been waiting for a split from Chipotle for a long time. In the mid-2010s, its stock price moved as high as $750 per share, but the company remained uninterested in doing a stock split. In the years that followed, a series of incidents involving foodborne illnesses damaged Chipotle's reputation, and its growth slowed considerably, which sent its share price lower by more than 60% from that prior peak by late 2017.
NYSE: CMG
Key Data Points
In the years since then, though, Chipotle has gotten back on track. Its stock nearly hit $2,000 per share last year before the bear market in growth stocks pulled it downward. But Chipotle shares are on the rise again now, and trading recently at more than $1,600. As such, a split would be consistent with similar moves from giants like Amazon, Alphabet, and Tesla (TSLA +2.45%).
Moreover, from a fundamental perspective, Chipotle looks strong. In the face of rising inflation, the restaurant chain has been able to pass its higher costs on to customers in the form of price increases without sacrificing too much growth. Comparable sales in its most recent quarter topped 10%, and rising margins helped Chipotle boost its year-over-year earnings by nearly 25%. With more store openings planned, Chipotle expects to sustain its growth trajectory well into the future.
2. Booking Holdings
The other stock that should be looking at a stock split is Booking Holdings (BKNG +0.76%). The online travel portal has managed to endure one of the toughest periods in the history of the leisure industry, and it's now taking full advantage of pent-up demand among travelers itching to get out of their homes following the first two years of the COVID-19 pandemic.
Booking Holdings' share price has been consistently higher than Chipotle's for years. The stock topped the $1,000 per share mark in 2013, and it went as high as $2,700 per share last year in anticipation of a travel recovery before giving back some of those gains. Even after a sizable pullback, it still fetches roughly $2,000 per share.
NASDAQ: BKNG
Key Data Points
As expected, Booking Holdings' business has returned to a solid footing in 2022 even after the near-shutdown of the travel industry in 2020. Second-quarter revenue nearly doubled from year-earlier levels, with bookings rising by 57% year over year. The company reversed a rare loss from the second quarter of 2021 with a huge profit, taking full advantage of the hot summer season.
Short-term business strength will likely keep lifting Booking Holdings' share price -- and that share price is certainly high enough already to warrant the same kind of move that Alphabet and Amazon made.
Does it really matter?
Of course, there's nothing that requires a company to split its stock. Doing so 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 that suggests they will face trouble down the road, so it seems increasingly likely that they'll join their peers in making split announcements sometime in the not-too-distant future.
