Stock splits are popular with investors. They make shares more affordable, and can also spotlight quality stocks. That's because splits are only necessary after substantial and sustained share price appreciation, which itself is often indicative of a company with solid financials and compelling growth prospects.
Nvidia (NVDA 4.43%) is an excellent example. The Wall Street Journal has described the chipmaker as "almost invincible" because it possesses a durable competitive advantage spanning superior hardware and a robust suite of supporting software. Nvidia shares have surged 780% since January 2023 amid unprecedented demand for artificial intelligence processors.
The company reset its soaring share price with a 10-for-1 stock split in June, its second split in three years. And Wall Street remains bullish. The stock carries a median 12-month price target of $144 per share, implying 12% upside from its current share price of $128. But certain analysts see more upside in two other stock-split stocks.
- Broadcom (AVGO +2.96%) announced a 10-for-1 stock split in June 2024 and executed the split in July 2024. Hans Mosesmann at Rosenblatt Securities recently raised his price target to $240 per share, implying 50% upside from its current share price of $160.
- Celsius (CELH +2.79%) announced a 3-for-1 stock split in November 2023 and executed the split that same month. Gerald Pascarelli at Wedbush Securities recently lowered his price target from $85 per share to $83 per share, but the new estimate still implies 112% upside from the current share price of $39.
Here's what investors should know about Broadcom and Celsius.
NASDAQ: AVGO
Key Data Points
Broadcom: 50% implied upside
Broadcom specializes in semiconductors and infrastructure software. It is the market leader in data center networking chips and application-specific integrated circuits (ASICs), custom silicon built for specialized use cases like artificial intelligence (AI). For instance, Broadcom helps Alphabet's Google and Meta Platforms design custom AI processors, and it recently won a third major customer that Reuters identified as TikTok parent ByteDance.
Broadcom is also the market leader in virtualization software due to its acquisition of VMware last year. Virtualization lets businesses manage and utilize IT infrastructure more efficiently by dividing physical hardware into multiple virtual systems. Doing so allows a single physical server to run several operating systems and applications simultaneously.
Since the acquisition, Broadcom has simplified VMware's portfolio, reducing product SKUs from 8,000 to four core offerings. The company is also transitioning all virtualization products to a subscription model. Going forward, Broadcom is focused on upselling clients with VMware Cloud Foundation, a hyperconverged infrastructure (HCI) solution that brings together virtualized compute, storage, and networking. Forrester Research recognized VMware a leader in the HCI market last year.
Broadcom reported good financial results in the second quarter, beating expectations on the top and bottom lines. Revenue increased 43% to $12.5 billion due to strong demand for AI infrastructure and VMware's virtualization products. Revenue increased 12% excluding VMware's contribution. Meanwhile, non-GAAP net income climbed 20% to $1.10 per diluted share.
Going forward, Wall Street analysts expect adjusted earnings per share to grow at 24% annually through fiscal 2025 (ends October 2025). That consensus estimate makes the current valuation of 36.9 times adjusted earnings look relatively reasonable. From that price, Broadcom could return 50% in the next 12 months, but investors that buy shares today should have a timeline of at least three years.
NASDAQ: CELH
Key Data Points
Celsius: 112% implied upside
Celsius develops and sells energy drinks across major retail channels in the United States. It has achieved strong brand recognition in its core geography, and the company is using that momentum to expand globally. It started selling products in the United Kingdom, Ireland, and Canada in the first half of 2024, and sales are expected to begin in Australia, New Zealand, and France in the second half of 2024.
Celsius is the third-most popular energy drink in the United States. The company gained 139 basis points of market share in the past year. Meanwhile, the leading brands Red Bull and Monster Beverage's Monster Energy gained 37 basis points and lost 134 basis points, respectively, during the same period. Put simply, Celsius is gaining ground on the industry frontrunners.
The company has achieved that success by marketing its beverages as "the better-for-you, zero-sugar alternative to traditional energy drinks." Celsius has thermogenic properties, meaning it increases metabolism and raises body temperature. It is clinically proven to increase calorie burn during exercise, so the brand is popular at gyms and fitness centers.
Celsius reported record financial results in the second quarter. Revenue increased 23% to $402 million, gross margin expanded 320 basis points, and GAAP net income surged 65% to $0.28 per diluted share. CEO John Fieldly told analysts, "We believe that we are well-positioned to capture incremental category dollar share."
However, Wall Street expects the company's earnings to increase at 15% annually through 2026. That estimate makes the current valuation of 39 times earnings look fairly expensive. So, I doubt Celsius can deliver triple-digit returns over the next year, and I would keep the stock on my watchlist at the present time.
