Stock splits shouldn't be the primary reason to consider buying a stock. But it's no surprise that many of the most popular stocks investors and Wall Street pros follow are those of successful companies that have a history of delivering superior returns for shareholders, and therefore, occasionally issue stock splits to keep their share prices affordable for individual investors.
While AI stocks are getting a lot of attention on Wall Street right now, investors need to be careful about overplaying their hand in one area of the market. There are plenty of analysts still making bullish calls on leading consumer brands that are reporting solid growth and have attractive upside potential in 2024 and beyond.
Wall Street pros see more gains in the year ahead for Amazon (AMZN +0.53%), Celsius Holdings (CELH 2.04%), and Nike (NKE +1.90%) -- three amazing companies that have a history of splitting their shares. Three Motley Fool contributors will explain what is driving these companies' growth and why now is a good time to buy shares.
The economy is making a comeback, and Amazon is poised to win
Jennifer Saibil (Amazon): Amazon split its stock in 2022, when the price tag was over $2,000. The move was the first in over 20 years, but the 20-for-1 split reflected the stock price's massive growth over that period. It's returned about 24% since its most recent split.
NASDAQ: AMZN
Key Data Points
Amazon faced pressure across several segments over the past few years, but it looks like it's emerging in excellent shape. It has maintained a strong lead over competitors in e-commerce and cloud computing, and after a net loss in 2022, net income is rising again. It tripled year over year in the 2023 third quarter. E-commerce is back to strong growth, outpacing overall retail growth. Amazon has also focused on becoming more efficient, restructuring its distribution network and cutting jobs. As inflation eases and people go back to spending, Amazon is well positioned to benefit.
Similarly, Amazon Web Services (AWS), its cloud services division, has seen decelerating sales growth as some customers cut their budgets. Management said there are indications that the trend is reversing, and clients are starting to expand their usage again.
Artificial intelligence (AI) could play an outsize role in Amazon's ability to outperform in 2024 and beyond. It recently launched several powerful AI tools for AWS, and it's using AI in e-commerce and its advertising business. Advertising continues to be a strong growth generator, with sales increasing 26% over last year in the 2023 third quarter, as compared with 13% for the whole company.
Amazon shares gained 81% in 2023, but they're still 18% below their all-time highs. The consensus analyst estimate is for Amazon stock to rise 17% over the next 12 to 18 months, with a high of 50% and a low of a negative 9% return. If Amazon delivers a strong performance in 2024, there's every chance that it can meet and surpass even the highest estimate.
A rising beverage brand with global growth potential
John Ballard (Celsius Holdings): Shares of this energy drink maker have returned over 4,500% over the last five years. The rapid ascent in its stock price caused the company to issue a 3-for-1 stock split in November. This business is just getting started on a long road of massive growth.
NASDAQ: CELH
Key Data Points
In Celsius' third-quarter business update, the company credited its 104% year-over-year growth in revenue to increasing availability of its products and brand awareness. This is the result of a long-term deal with PepsiCo to use the beverage giant's extensive distribution network to sell its products -- a major advantage for an up-and-coming consumer goods brand.
Analyst Vivien Azer from TD Cowen has set an $83 price target on the stock, representing 41% upside from Celsius' current share price. Azer sees the launch in Canada in the first quarter as another growth opportunity to keep the company's momentum going in the new year.
The share trade at a high forward price-to-earnings (P/E) ratio of 56, but as Celsius expands beyond the U.S., the added sales volume could significantly boost the company's profits and justify the stock's lofty P/E. Over the next five years, analysts expect Celsius to grow earnings by 55% per year.
Identifying top consumer brands while they're small can be a rewarding investment strategy. Celsius looks like an ideal candidate for investors interested in finding these opportunities.
A classic blue chip play
Jeremy Bowman (Nike): Few stocks have a stronger track record than Nike. The sportswear giant has dominated its industry for more than a generation, and while it's struggled with the broader headwinds in the apparel sector and discretionary spending recently, the company still looks well positioned for long-term growth.
Nike also has a long history of splitting its stock, executing seven 2-for-1 stock splits since its initial public offering in 1980. In other words, if you owned 1 share of the stock back then, you would have 128 today.
Nike's last stock split came at the end of 2015, and since then, the shares are up 61%, so it may be premature to expect the company to split its stock again right now.
NYSE: NKE
Key Data Points
However, Wall Street is optimistic about the company. The average analyst expects Nike shares to gain 19% this year, which makes it the Dow Jones stock that analysts are most bullish on after Disney. Of the 30 analysts covering the stock, 20 rate it a buy, nine call it a hold, and one rates it a sell.
There's a good reason why Wall Street is so confident in the Swoosh. Nike stock is trading down 42% from its peak in 2021 due to slow growth and the broader demand headwinds it's facing. However, the company demonstrated its ability to squeeze more profits out of its business. In its most recent quarter, earnings per share jumped 21% to $1.03 even as revenue was up just 1%. It improved gross margin by 170 basis points as the company lowered its inventory by 14%, and it should benefit from that trend in the coming quarters.
That, combined with an expected economic recovery and the help of lower interest rates, should push the shares higher this year, even if another stock split doesn't appear imminent.
