The success of HubSpot (HUBS 1.34%) continues to lift the stock. Since entering the market in 2014 at just $25 per share, the stock has made steady gains over its nearly 10-year history. By late 2021, it reached a high of $866 per share.
Even though shares fell more than 70% from that high at one point, the stock has since bounced back. It now stands at just under $600 per share as of the time of this writing. Nonetheless, whether such a price positions it for a stock split requires investors to look at factors beyond the cost per share.
NYSE: HUBS
Key Data Points
Why HubSpot might split its stock
HubSpot has never split its stock, and its board has given shareholders no indication it plans such a move. Recently, however, it was the 38th-most-expensive stock trading on U.S. markets.
Also, many other tech companies have decided to split their stocks, often at lower nominal prices than HubSpot's current cost per share. When Apple initiated a 4-for-1 split in August 2020, it was less than $500 per share pre-split. Nvidia was around $800 per share when it passed its own 4-for-1 stock split in July 2021.
Moreover, given HubSpot's growth history, the prospects for continued increases are high. For 2023, analysts forecast that non-GAAP net income will rise by 104% and an additional 17% in 2024, increasing the likelihood that its share price will rise further over time.
Reasons why it may not split
But the high nominal stock price may be HubSpot's only reason to consider a split. Going back to Apple, it is one of the companies in the Dow. Since the Dow Jones Industrial Average is price-weighted, a high stock price can have a disproportionate influence over the index. Thus, these stocks tend to split periodically.
But HubSpot's market cap of around $30 billion makes it barely a large-cap stock. And with HubSpot's rival Salesforce.com already a Dow 30 stock, HubSpot is an unlikely choice to join the index. So a lower nominal price offers no obvious benefit to HubSpot from this standpoint.
Additionally, under today's trading rules, a low nominal price is unnecessary to attract small investors. While some investors do not have the cash necessary to purchase a whole share, with brokerages willing to sell fractional shares, HubSpot stock is within reach of any investor.
Furthermore, a desire to increase liquidity is often cited as a reason to split shares. Berkshire Hathaway's Class A shares have an average volume of less than 9,000, compared with more than 56 million for Apple.
HubSpot's average of around 380,000 shares per day is well below that, but remains significantly above share volume in its early days, when it sold at a much lower share price. Thus, the company is likely not worried about liquidity at this time.
Is a HubSpot stock split likely?
Although HubSpot's board could initiate a stock split at any time, investors have no reason to believe a split is forthcoming. Indeed, the stock has reached a high nominal price, and given the trajectory of its profit growth, that trend is likely to continue over the long term.
However, HubSpot is not a likely candidate for any price-weighted indexes, and its volume is well above historical lows. Also, small investors can still buy the stock if a brokerage offers fractional shares.
Ultimately, the most likely reasons a split will happen eventually are time and pressure. Currently, only 16 U.S. stocks sell above $1,000 per share. As its nominal price reaches higher levels, it could induce HubSpot to join the much larger group of high-flying tech stocks with stock split histories.
