Step aside, Chipotle Mexican Grill (CMG 0.31%). There's a more heavily anticipated stock split on the way now. Nvidia (NVDA 1.34%) announced in its first-quarter update last week that it plans to conduct a 10-for-1 stock split effective June 7, 2024. Chipotle's board of directors approved a 50-for-1 stock split in March that's expected to take effect on June 26, 2024.
Nvidia has been the bigger winner by far so far this year. The GPU maker's shares have skyrocketed more than 125% compared to a gain of more than 35% for Chipotle. But which is the better stock-split buy now: Nvidia or Chipotle?
NASDAQ: NVDA
Key Data Points
Forget about the stock splits
First things first: Forget about the stock splits. I know many investors get excited about them and I led off this article talking about them, but they're practically meaningless.
Sure, both Nvidia and Chipotle stocks will soon sport lower share prices. And maybe this will entice some retail investors to buy. The reality, though, is that anyone who wanted to invest less the price of one share in Nvidia and Chipotle could have already done so. How? Many online brokers offer the opportunity to buy fractional shares of top stocks.
Another factor to consider is that stock splits don't always provide nice catalysts for a stock's price. And when they do, the gains are often temporary.
Most importantly, though, stock splits change nothing about a company's underlying business. Stock splits merely increase the number of outstanding shares and lower the price of each share. That's it.
How Nvidia and Chipotle stack up against each other
Nonetheless, the upcoming stock splits for Nvidia and Chipotle could stoke interest in both stocks. How do they stack up against each other? Let's start with each company's financial position.
Nvidia reported Q1 revenue of $26 billion, up 262% over the result in the prior-year period. The company posted a profit of nearly $15 billion, soaring 628% year over year. Nvidia's cash stockpile topped $31.4 billion as of April 28.
Chipotle's Q1 revenue jumped 14.1% year over year to $2.7 billion. Its earnings rose 13.3% to $359.3 million. The restaurant operator had cash and cash equivalents totaling nearly $727.4 million as of March 31.
NYSE: CMG
Key Data Points
Moving on to growth prospects, Wall Street expects Nvidia's earnings will grow by nearly 43% annually on average over the next five years. Analysts look for Chipotle's earnings to increase by around 22% annually during the same period.
What about valuation? Nvidia's shares trade at a lofty 41.5 times forward earnings estimates. However, the stock's price-to-earnings-to-growth (PEG) ratio is a more reasonable 1.35. Meanwhile, Chipotle's forward earnings multiple of 58.8 and PEG ratio of 2.72 are even higher than Nvidia's multiples.
I doubt that income investors will find either stock appealing. However, Nvidia does offer a dividend whereas Chipotle doesn't. Nvidia also recently announced a 150% increase to its dividend payout.
Better stock-split buy?
This decision appears to be an easy one. Nvidia's financials are more impressive than Chipotle's. The giant chipmaker has stronger growth prospects. Its valuation is more attractive. Nvidia even offers a small dividend. It's the hands-down winner, in my view.
Just because Nvidia is a better pick than Chipotle, though, doesn't automatically make it the best stock to buy right now. As great as Nvidia is, I think other stocks could be even bigger winners over the next few years. These stocks might not have stock splits on the way, but that doesn't matter one bit.
