Stock splits have taken over the market this year. Among the high-profile stocks that have split their shares in 2022 are Amazon, Alphabet, and Tesla, three of the most valuable companies in the world.
Stock splits don't change the fundamental value of a stock, but they get attention because they make individual shares of a stock cheaper, therefore making it more affordable to individual investors. They also act as milestones for a company's growth, as stock splits tend to come when a stock reaches a round number, like $1,000 a share.
Though stock splits don't change the underlying value of a stock, there is some evidence that they lead to better returns. A study from Bank of America showed that since 1980, stock-split stocks generated average returns of 25% after the split was announced, compared to just a 9% return for the S&P 500.
That's likely because stock splits tend to come when a company is strong, not weak. Splits are generally announced after a stock price has risen for some time, and they're a sign of confidence from management. They also help the stock's liquidity, making it more accessible to retail investors.
Though Amazon, Alphabet, and Tesla have gotten much of the attention from stock split investors, there are two smaller stock-split stocks that could make you rich in the long run.
1. The Trade Desk: Leading the ad tech revolution
Not too long ago, if you were a brand that wanted to advertise, you were essentially flying blind. You'd buy ads ahead of time for television and print media based on vague demographics like age and gender.
In the digital age, brands can update campaigns instantaneously with the help of ad tech platforms like The Trade Desk (TTD 3.22%). The Trade Desk is the leading demand-side platform (DSP) helping brands efficiently manage their online ad campaigns, leading to increased return on investment.
NASDAQ: TTD
Key Data Points
The Trade Desk has a long history of outperforming the market, as the stock is up nearly 2,000% since its 2016 IPO. The company also has a track record of delivering both strong growth and high margins, and the company's Unified ID 2.0 protocol appears to be set to replace third-party cookies once Google eliminates then, making The Trade Desk a key infrastructure provider in the digital ad space.
Among the integrations that Trade Desk just announced for UID 2.0 are media companies like Disney and Vox Media, as well as Amazon Web Services, the leading cloud infrastructure service.
The Trade Desk also rewarded investors with a 10-for-1 stock split on June 17, 2021. Shares have actually been flat since then, but that's still outperformed the S&P 500, which is down 9% in that time frame.
Given the large, addressable market in front of The Trade Desk and its track record for growth and profitability, this stock-split stock is a good bet to surge when market conditions improve.
2. Shopify: Democratizing e-commerce
While Amazon might be the dominant company in e-commerce, Shopify (SHOP 0.11%) has opened e-commerce to thousands of small and medium-sized businesses, giving them everything they need to thrive, including tech tools like web design, payments, marketing, and more, as well as access to capital.
As the leader in e-commerce software, Shopify has seen its growth skyrocket through much of its history, and the stock is up more than 1,000% from its 2015 IPO, even after crashing over much of the past year.
Shopify has hit a rough patch due to difficult comparisons with its results a year ago, when e-commerce sales were growing rapidly as the pandemic was fully active. Since then, consumers have returned to pre-pandemic habits, such as shopping in brick-and-mortar stores and spending money on services like travel and restaurants. This has dealt a setback to Shopify.
Nonetheless, its growth is still solid, with revenue up 16% to $1.3 billion in the second quarter, and Shopify's growth rate should improve once inflation cools off and the macro headwinds fade, though it may take time to get there.
Shopify executed a stock split on June 29. Soon after, the stock soared by more than 20%, though it has since given up these gains.
The company still has a large e-commerce market to penetrate, as only about 15% of retail sales in the U.S. take place online and it's still outgrowing peers like Amazon. While management has said that 2022 will be a transition year, Shopify still looks to have a lot of upside potential once e-commerce starts growing again.
