Stock-split fever is making the rounds. Some investors have been infected by it in a major way. That shouldn't be surprising considering the big names that have announced stock splits this year.
Chipotle Mexican Grill (CMG +1.30%) announced an eyebrow-raising 50-for-1 stock split in March. It's scheduled for after the market close on June 25, 2024. Nvidia (NVDA 3.17%) beat Chipotle to the punch. Although the tech giant announced its 10-for-1 stock split in May, it conducted the split after the market close on June 7. Most recently, Broadcom (AVGO 2.99%) announced a 10-for-1 stock split last week. The semiconductor maker plans to split its shares after the market close on July 12.
If you've got stock-split fever, all three stocks could be on your radar screen. But which is the best pick to buy right now? Here's how Chipotle, Nvidia, and Broadcom stack up against each other.
The stock splits don't matter much
First things first: The stock splits for Chipotle, Nvidia, and Broadcom don't matter much in choosing between these stocks.
Perhaps the splits will spark a temporary bounce. However, it's difficult to know if a split or other factors cause a stock to rise.
More importantly, stock splits don't change anything about these three companies' underlying businesses or prospects. Over the long term, stock movements correlate with earnings. Splitting shares could attract some investors who were reluctant to buy at high share prices, but the move won't impact Chipotle's, Nvidia's, or Broadcom's earnings by one penny.
An easy elimination
With that out of the way, I think the most practical way to decide which of these three is the best stock-split buy right now is to use a process of elimination. And there is one easy elimination among the group, in my view.
Chipotle reported year-over-year revenue growth of 14.1% in the first quarter of 2024. Adjusted earnings per share jumped 27.3%. Those are solid numbers. However, this growth appears to be fully baked into Chipotle's share price and then some.
NYSE: CMG
Key Data Points
The stock trades at nearly 61 times forward earnings. Chipotle's price-to-earnings-to-growth (PEG) ratio is 2.83. Although the Tex-Mex restaurant chain continues to deliver strong growth, it isn't anywhere close to the level needed to justify the stock's valuation. I'd scratch Chipotle off the list.
Two great AI stocks, one winner
On the other hand, Broadcom and Nvidia can't be eliminated so easily. Both companies are delivering impressive growth. Both stocks sport valuations that don't seem to be as frothy as Chipotle's.
Broadcom's revenue soared 43% year over year in its fiscal 2024 Q2, which ended on May 5, 2024. Its earnings jumped more than 20%. Much of this success can be attributed to increasing demand for the company's artificial intelligence (AI) products.
NASDAQ: AVGO
Key Data Points
Sure, Broadcom doesn't qualify as a cheap stock. Its shares trade at a forward earnings multiple of 36.9 with a PEG ratio of 1.69. However, Broadcom's price doesn't seem overly excessive in my opinion because of the semiconductor maker's AI-related growth prospects.
Then there's Nvidia. Its revenue rose by a jaw-dropping 262% year over year in Q1. Adjusted earnings skyrocketed 461%. Business is booming thanks to the tremendous demand for Nvidia's graphics processing units (GPUs) in training and deploying AI systems.
NASDAQ: NVDA
Key Data Points
Like Broadcom, Nvidia isn't cheap based on commonly used valuation metrics. Its forward earnings multiple is a lofty 50.8. Nvidia's PEG ratio is 1.51. However, the company stands at the center of the AI revolution. It's quite possible that Nvidia's current valuation could look attractive in retrospect five years from now.
I think that Broadcom and Nvidia are two great AI stocks. But until there's a good reason to expect Nvidia's growth to slow, it's the best stock-split pick of these three.
