Don't focus on the past, look to the future. That's something to remember when you hear about big-name companies that conducted stock splits in 2022 and aren't likely to have another one anytime soon.
The reality is that there are other stocks with key stock splits on the calendar for 2023. Here's the top under-the-radar stock-split stock to keep your eyes on right now.
A stock for all seasons
AAON (AAON 1.39%) truly is a stock for all seasons. The company ranks as one of the top leaders in heating, ventilation, and air conditioning (HVAC) solutions.
In the past, AAON's niche was selling premium HVAC systems. Despite charging higher prices, the company's equipment often offered the lowest total cost of ownership thanks to its systems lasting up to 2x longer than rivals and providing better energy efficiency.
Now, though, AAON's competition is having to raise their prices. New U.S. Department of Energy regulations raised minimum efficiency standards. This has driven rivals' manufacturing costs higher. As a result, they're increasing prices. AAON, however, has met those higher standards for years and didn't incur additional costs. This dynamic should help the company gain market share.
The focus on decarbonization could drive higher replacement demand for HVAC systems in the future. AAON's solutions target commercial properties, which generate roughly 16% of total carbon emissions in the U.S. Close to 40% of those carbon emissions come from HVAC systems.
Destination: Splitsville
AAON's share price is only a little over $100 even after soaring more than 35% this year. That might not seem like a price level that warrants a stock split. Yet that's exactly what the company is planning.
Earlier this month, AAON's board of directors approved a 3-for-2 stock split to be conducted on Aug. 16, 2023. All shareholders of record at the close of business on July 28 will receive one additional share for every two shares of AAON that they own. The company will pay cash instead of issuing fractional shares in cases where individuals own an odd number of shares.
Stock splits are relatively common for AAON. The company has split its shares eight times in the past. However, its first one in September 1993 was a 1-for-4 reverse stock split. Aside from that outlier and a 11-for-10 split in March 1995, AAON has conducted 3-for-2 stock splits.
Have stock splits provided catalysts in the past for AAON? It's a mixed verdict. The HVAC leader's share price did surge in some cases following a split but not always.
The biggest knock against AAON
The upcoming stock split isn't the main reason to consider investing in AAON. Instead, the company's solid business prospects are what make the stock attractive.
However, there is one big knock against AAON to keep in mind: The stock's valuation is high. AAON's shares currently trade at a price-to-earnings ratio of 47x based on trailing-12-month earnings.
Yes, the company should deliver strong growth. Even factoring this in, though, the stock trades at over 31x the consensus earnings estimate for 2024.
Relatively few Wall Street analysts cover AAON. All three analysts surveyed by Refinitiv in July rate the stock as a hold. I suspect that valuation is their main concern.
My hunch is that a pullback for the broader stock market could be on the way in the not-too-distant future. AAON would likely be pulled down along with most stocks if and when that happens. I think that AAON could be a stock-split stock to buy on the dip.
