There was a time not too long ago when a sky-high stock price was an indicator of prestige. The subtle, unspoken message was, "Our stock is only for the upper echelon of investors." Some companies that sported four-figure stock prices in recent history include Apple, Alphabet, and Amazon, to name a few.
Meanwhile, the trading environment has changed. Companies are now seemingly looking to make their stocks more approachable for the average investor. How do we know? All three of the aforementioned tickers have since undergone splits, bringing their share prices down to much less intimidating levels.
Not every company behind high-priced stocks has followed suit though -- at least, not yet. Shares of auto parts retailer O'Reilly Automotive (ORLY 0.08%) are still priced at nearly $900 apiece. Don't be surprised, however, if this company is one of the next to pull the stock-split trigger.
This possibility only bolsters the already bullish case for owning the stock. Here's why.
Good reason to expect it, great reason to hope for it
To be clear, the company has not indicated that it's currently mulling a stock split. Also, know that mathematically, it shouldn't matter whether O'Reilly does or doesn't do so. Stock splits are tantamount to changing a $20 bill into two $10 bills -- the total value of the company's operation is still the same before and after a split is completed.
And yet, there's good reason to expect a split sooner than later and a great reason to expect a net-bullish bump if and when it happens. As to the former, O'Reilly Automotive is no stranger to stock splits. It's undergone three of them since going public in 1993, although the most recent of these was all the way back in 2005. With more than 17 years and nearly 2,900% worth of gains logged since the last one, another split could well take shape in the foreseeable future.
Regarding the potential bullish benefit of a stock split, as was noted, they theoretically shouldn't matter. Yet, somehow they do. Data mined by researchers with Bank of America indicates stocks gain an average of 25% in the 12 months following a split versus an average gain of 9% for a benchmark index.
Other findings on the matter aren't quite so bullish. Nevertheless, the number-crunching does suggest stocks tend to outperform in the months following a split, even if those gains are simply driven by pre-split momentum. And O'Reilly's certainly got plenty of that in its business right now.
A well-established tailwind
The auto parts and care retailing business is a curious one. Namely, it's far more resilient and consistent than almost any other sliver of the retail arena. Not once since 2010 has O'Reilly Automotive reported quarterly revenue that was lower on a year-over-year basis, including in 2020 when the COVID-19 pandemic was making matters complicated for everyone. Operating income growth has been almost as reliable. Ditto for net profits.
ORLY Revenue (Quarterly) data by YCharts.
The key to this consistent success is the underlying nature of the business itself. Most U.S. households own at least one vehicle; many own two or more. These cars must be taken care of -- and increasingly so, given the enormous costs of new ones. (Kelley Blue Book reports the average price of a new car sold in the United States is currently hovering just above $44,000.)
Even the most basic vehicle maintenance and care can cost a car owner several hundred dollars per year, though, and that figure grows significantly as the car ages. YourMechanic.com indicates annual maintenance costs can exceed $1,000 once a vehicle is seven years old, and once it's 12 years old, the average annual cost is closer to $2,000.
For perspective, S&P Global Mobility reports the average car regularly being driven on U.S. roads now stands at a record-breaking 12.2 years old. That number is apt to keep growing, too, as long as it makes more financial sense to keep an older car running than to purchase a new or newer one.
Buy it for the fundamentals; hold it for a possible split
The point is, O'Reilly Automotive is a pick worth holding for the long haul, regardless of whether there's a stock split in its foreseeable future. Sustainable growth prospects are the most important ownership criteria for any investment. If a stock might experience a little bullish bump because of a prospective split, well, so much the better.
