Though the stock market has experienced a historic bout of volatility in recent weeks, it doesn't change the fact that optimists have ruled the roost on Wall Street for more than two years.
While the artificial intelligence (AI) revolution has garnered most of the credit for lifting the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite to numerous record-closing highs in 2024, it's important not to overlook the other key catalyst last year: stock-split euphoria.
A stock split is a tool publicly traded companies have available that allows them to cosmetically adjust their share price and outstanding share count by the same magnitude. Adjusting a company's share price via stock split doesn't alter its market cap or in any way impact its underlying operating performance.
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Opportunistic investors have gravitated to a certain type of stock-split stock
Stock splits come in two varieties -- forward and reverse -- with one overwhelmingly favored by investors.
Reverse stock splits, which are designed to increase a company's share price while simultaneously reducing the number of shares outstanding, aren't all that popular with investors. This is because reverse splits are usually undertaken from a position of operating weakness and aimed at avoiding delisting from a major stock exchange. In other words, the companies completing reverse splits are typically dealing with one or more significant headwinds.
On the other hand, opportunistic investors have been gravitating to companies enacting forward splits. This type of split aims to reduce a company's share price to make it more nominally affordable for everyday investors and/or employees who may not have access to fractional-share purchases through their broker.
Companies that are incented to lower their nominal share price to make it more accessible to retail investors are doing something right. These are often industry-leading businesses that have been out-executing and out-innovating their peers.
To add fuel to the fire, companies that undertake forward stock splits have a lengthy track record of outperforming the benchmark S&P 500. According to data from Bank of America Global Research, public companies completing forward splits have delivered an average return of 25.4% in the 12 months following their stock-split announcement since 1980. In comparison, the S&P 500 has averaged a tamer 11.9% annual return over this same period.
Last year, more than a dozen high-profile companies completed a stock split, all but one of which was of the forward variety. This included AI behemoths like Nvidia, Broadcom, Super Micro Computer, and Lam Research, all of which enacted 10-for-1 forward splits, as well as retail powerhouse Walmart, which kicked off stock-split euphoria early in 2024 with a 3-for-1 forward split.
NASDAQ: ORLY
Key Data Points
Although 2025 began slowly on the stock-split front, investors were graced with the first major split announcement in mid-March. O'Reilly Automotive (ORLY 1.50%), whose stock has climbed by more than 4,400% since its last split in 2005, declared its intent to complete a 15-for-1 forward split after the close of trading on June 9.
When examined with a wide lens, O'Reilly Automotive's stock has gone parabolic thanks to the aging of cars and light trucks on American roadways, as well as its premier stock buyback program. O'Reilly has spent nearly $26 billion to repurchase more than 59% of its outstanding shares since the start of 2011, which has helped to lift its earnings per share (EPS).
But O'Reilly isn't the only rodeo in town. Though it's the first high-profile company to announce a split in 2025, another public company, which is no stranger to conducting forward splits, has thrown its hat into the proverbial ring.
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Say hello to Wall Street's newest stock-split stock
On Aug. 20, 1987, industrial and construction supplies wholesale distributor Fastenal (FAST +0.46%) became a publicly traded company. Since this initial public offering (IPO), it's completed a 3-for-2 stock split in 1988, as well as 2-for-1 forward splits in 1990, 1992, 1995, 2002, 2005, 2011, and 2019.
In the 37-plus years Fastenal has been a public company, its shares have soared by more than 127,100%, which is why a steady diet of stock splits has been necessary. On April 23, the company's board approved yet another 2-for-1 stock split, which is slated to take effect following the close of trading on May 21.
Fastenal's ninth stock split is a reflection of its success on the macro front, as well as ongoing investments in its operations.
One of Fastenal's biggest allies is time. Though U.S. recessions are normal, healthy, and inevitable events, they're historically short-lived. In the nearly 80 years since the end of World War II, the 12 U.S. recessions that have occurred were resolved in an average of 10 months. Meanwhile, periods of economic expansion endure for around five years. With around three-quarters of its sales tied to manufacturing, an expanding U.S. economy bodes well for its underlying operating performance.
To build on this point, Fastenal's contract sales have continued to climb, even amid an uncertain near-term economic outlook. Contract sales include "national multi-site, local and regional, and government customers with significant revenue potential," according to the company. These are customers Fastenal has long-standing relationships with, and they accounted for close to three-quarters of total sales in the March-ended quarter. Rising sales indicates Fastenal is having no trouble locking in new/lucrative signings from important clients.
NASDAQ: FAST
Key Data Points
But there's more to this story than just macroeconomic factors working in the company's favor. Fastenal is also benefiting from various investments geared at streamlining the needs of its customers.
Foe example, Fastenal has invested aggressively in various e-commerce and digital solutions that are designed to lower costs for its clients. This includes its internet-connected FASTVend vending machines, which are located onsite for its customers. In addition to helping the company make direct sales via fasteners and other items, these machines provide invaluable client information that can help Fastenal anticipate their demand/inventory needs.
Though Fastenal's long-term future remains bright, the biggest challenge is going to be overcoming a historically pricey valuation. While an argument can be made that Fastenal's importance to supply chains has earned it a well-deserved valuation premium, a forward price-to-earnings (P/E) ratio of nearly 34, which is 12% above its average forward earnings multiple over the last half-decade, is a bit difficult to justify given the tariff overhang encircling the stock market.
It may take some time before Fastenal's bottom line catches up with the rapid ascent of its stock.
