One of the more interesting developments for investors over the past few years has been a rebirth in the popularity of stock splits. With the advent of no-cost and low-cost stock trading, investors are no longer obligated to buy stocks in round lots of 100. Yet with prices often in the hundreds or even thousands of dollars, some people with smaller monthly investing budgets still prefer lower-cost stocks.
Because of that preference, stock splits have soared in popularity. In 2022, a laundry list of investor-favorite companies split their shares. These included the following, in order by date:
- Amazon completed a 20-for-1 split payable June 3, 2022.
- DexCom finished a 4-for-1 split payable June 10, 2022.
- Shopify executed a 10-for-1 split payable June 28, 2022.
- Alphabet decreed a 20-for-1 split payable July 15, 2022.
- Tesla implemented a 3-for-1 split payable Aug. 24, 2022.
- Palo Alto Networks enacted a 3-for-1 split payable Sept. 13, 2022.
Seasoned investors know that stock splits don't change the value of the underlying business, so it's easy to dismiss a stock split as superfluous. However, the star power of this list illustrates that companies recognize the importance of keeping shares affordable for the average investor. Furthermore, given the general resurgence on Wall Street so far in 2023, several popular companies have stock prices that are now sufficiently high enough to consider a lower share price. Here are three companies that could well have stock splits in their future.
Image source: Getty Images.
1. NVR
It's been a tough couple of years for the housing industry. Rising interest rates, labor shortages, lingering supply chain constraints, and rising material costs are just a few of the issues faced by home builders. Yet amid those challenges, NVR (NVR -1.01%) stock remains near an all-time high.
So what's fueling the homebuilder's rise? Historically high mortgage rates are keeping many homeowners in place, fueling a new home shortage. There were roughly 1.1 million existing homes for sale to close out May, compared with 1.9 million at the same time in 2019, according to a report in The Wall Street Journal, helping illustrate the magnitude of the shortfall. This has resulted in robust demand for new construction, benefiting the largest homebuilders, including NVR.
Furthermore, the company uses land purchase agreements to acquire finished lots from third-party developers. The deals are structured so that NVR only takes possession of the land when it has a contracted buyer and is ready to build, which helps minimize its financial obligations while also helping reduce its risk.
NVR's history of solid results in a variety of economic environments has driven the stock up 39% thus far in 2023. Over the past 10 years, however, the example is even more pronounced. Revenue has surged 83%, while net income is up 315%. This has driven NVR's soaring stock price, which is up roughly 591%, recently clocking in near $6,411 as of Monday's market close -- a price that's just begging to be split.
2. MongoDB
Like many technology stocks, MongoDB (MDB 4.83%) was hammered by the downturn, but the macroeconomic headwinds are easing, helping the stock rebound. A pioneer of the cloud-native database, Atlas -- its fully hosted database-as-a-service solution -- not only works with legacy rows and columns but can also handle video and audio files, social media posts, and even entire documents, offering users much more robust database functionality. It also provides a vast repository of generative artificial intelligence (AI) tools.
CEO Dev Ittycheria recently laid out the magnitude of the opportunity for MongoDB: "We believe the recent breakthroughs in AI represent the next frontier of software development. The move to embed AI in applications requires a broad and sophisticated set of capabilities while enabling developers to move even faster to create a competitive advantage." As a result, he believes the company is "well positioned to benefit from the next wave of AI applications in the years to come."
MongoDB has generated enviable growth even during the worst downturn in over a decade. In its 2024 first quarter, ended April 30, its revenue climbed 29% year over year, while adjusted EPS soared 180%. Perhaps more telling is the company's expanding customer base, as it added 2,300 customers during the quarter, up 22% year over year, the highest number of additions in more than two years.
MongoDB's solid track record of operating results and its growing opportunity has driven the stock up 108% so far this year. The cumulative results since the company's public debut in late 2017 are even more striking. Revenue has soared 1,300%, sending its stock price up 1,170%, with the stock price above $408 as of Monday's market close. MongoDB's growth spurt is likely to continue, suggesting a stock split could be in the cards.
3. Microsoft
Microsoft (MSFT 1.82%) pioneered the ubiquitous Windows operating system that's a household name today while also bundling the Office suite of productivity tools. Since then, the company has become one of the leading providers of enterprise software-as-a-service (SaaS) applications for enterprise, a cloud computing titan, and could soon be adding to its growing video game aspirations.
Yet it's Microsoft's recent moves in AI that have investors most excited. The company's $13 billion investment in ChatGPT parent OpenAI and integration of generative AI tools in its search engine kicked off the current AI arms race among tech companies. Furthermore, the company's "big three" cloud infrastructure platform, Azure, provides the perfect venue to offer AI to the masses.
For its fiscal 2023 third quarter, ended March 31, Microsoft's revenue grew 7% year over year while EPS climbed 10% -- even in the face of continuing macroeconomic headwinds. However, accelerating demand for AI could boost its results from now on.
Microsoft has a long track record of consistent growth, but excitement regarding AI has driven the stock up 44% so far in 2023. The results are even more compelling when viewed over the past decade. Revenue has grown 185%, driving net income up 249%. This has fueled Microsoft's rising stock price, up more than 855%, with a price of $346 as of Monday's market close.
The company hasn't split its shares since 2003, but Microsoft's price spike in recent years may just be the catalyst the company needs to initiate its next stock split, which could happen before the year is out.
Every rose has its thorns
While these stocks outperformed the broader market indexes over the past 10 years, only one is what I might call "cheap." NVR, Microsoft, and MongoDB are selling for 2, 10, and 25 times next year's sales when most experts agree a reasonable price-to-sales ratio is between 1 and 2, making NVR the bargain of the bunch.
That said, and as illustrated, Microsoft and MongoDB also have a strong record of long-term performance, which explains why they are deserving of a premium.
