A stock split in and of itself isn't a reason to buy or sell a stock. These maneuvers don't necessarily boost a company's valuation right away, either. Still, they do tend to draw attention from investors. That's because they lower the individual share prices of stocks that have soared to a high level, which makes it a bit easier for a wider range of investors to get in on the action.
So when the opportunity to buy shares at a more accessible price presents itself, it's worth looking at the rest of the picture. And if things look good, it may be time to invest. That's the case for these three companies that have completed stock splits in recent months.
1. Amazon
Amazon (AMZN +3.47%) is a leader in e-commerce and cloud computing. The retail e-commerce market grew by about 16% last year, according to Statista, while the researchers at Gartner say cloud computing soared more than 41%. So the company is in a great position in two high-growth areas.
NASDAQ: AMZN
Key Data Points
The current macroeconomic environment has weighed on Amazon's e-commerce operations. But the good news is that the company is making progress on managing the challenges. For instance, it has increased productivity and cut those costs it can control. And more good news is the fact that the current economic context is temporary. This means there are likely better days ahead for Amazon and its investors.
At the same time, its cloud computing business -- Amazon Web Services (AWS) -- is growing sales and operating income by double-digit percentages. It continues to expand its reach and add new clients and projects. This is key because AWS typically provides most of the tech giant's operating income.
Meanwhile, Amazon shares are trading at around their lowest price-to-sales ratio in four years. So this may be a perfect opportunity for investors who aim to buy and hold for the long term.
AMZN PS Ratio data by YCharts
2. Alphabet
Alphabet (GOOG +1.44%) (GOOGL +1.71%), the parent company of Google, makes most of its money through advertising. Today's economic landscape clearly is weighing on that sort of business. But, as I said above, these conditions won't last forever. So it's important to look at Alphabet's track record -- and its potential.
The company is the global leader in the search engine market, with a market share of more than 83%, according to Statista. It also has a growing cloud computing business. In the second quarter, its cloud computing revenue advanced 35%.
Alphabet's strong revenue and profit track record are another reason to be confident in it as an investment. Those measures have steadily increased by billions of dollars in recent years. Key financial measures such as return on invested capital and free cash flow also have generally gained over time.
GOOG Return on Invested Capital data by YCharts
Alphabet still is growing. In the second quarter, revenue climbed 13% year over year. But, as mentioned above, the pace is slowing. The company reported 62% growth in the same quarter last year.
As a result of the slowdown, Alphabet shares have stumbled. They've lost more than 20% so far this year, and they're trading at only 20 times trailing 12-month earnings. That's a cheaper valuation than Microsoft or Apple.
GOOG PE Ratio data by YCharts
Investors who buy now may not see big gains right away. But, considering Alphabet's track record and market position, they could enjoy excellent returns down the road.
3. Tesla
Tesla (TSLA +0.69%), too, has been facing challenges in recent times. Chip shortages and factory shutdowns due to coronavirus restrictions have weighed on its production. But even in this context, the electric vehicle leader is generating impressive earnings. The company had its best month for vehicle production ever in the second quarter.
An important point is that Tesla is investing in capacity. The vehicle maker opened two massive factories in recent times -- in Austin, Texas, and in Berlin, Germany. Tesla continues to ramp up production in those locations. This should help the company work toward a major goal: 50% average annual growth in vehicle deliveries.
NASDAQ: TSLA
Key Data Points
Now, let's talk about a few key earnings figures. In the second quarter, Tesla reported an industry-high operating margin of 14.6.%. It also reported net income on a GAAP basis of $2.3 billion. And it generated positive free cash flow of $621 million. If Tesla can accomplish this much during difficult times, I'm confident about its prospects once the economic environment improves.
Meanwhile, the shares are trading at 66 times forward earnings estimates, down from more than 90 earlier this year. This may not exactly be cheap. But it's a reasonable entry point considering Tesla's solid performance during tough times -- and its potential.
