Last year was a big one for stock splits, with some of the market's most exciting companies, from Nvidia to Broadcom and Chipotle Mexican Grill, taking part. Investors always are on the lookout for these events, and they often happen after a stock has soared over several months or years. The maneuver brings down the price of each individual share, making the stock easier for more investors to buy.
So when looking for the next potential stock-split company, it's a great idea to consider recent top performers. And that brings me to CrowdStrike (CRWD 1.13%), a stock that's soared nearly 50% this year to a record high of just over $500. Will CrowdStrike announce a split soon? Let's consider the evidence.
Image source: Getty Images.
How do stock splits work?
First, though, a quick look at stock splits themselves. Splits happen when a company offers additional shares to current holders, but the value of the holders' total position remains the same. By doing this, the price of each individual share declines, but the market value of the company is left unchanged. In fact, nothing fundamental changes after a stock split.
So if nothing really changes, why are stock splits viewed as positive? As mentioned, these operations, by lowering the per-share price, make it easier for more investors to get in on the stock. Certain investors don't have access to fractional shares, making it difficult for them to buy stocks once they reach certain levels -- for example, $500 or even $1,000. And others may see those levels as a psychological barrier, even if the stock isn't expensive from a valuation standpoint.
A stock split won't lead to a pop in the share price the day of the operation, but over time, it could draw more investors to a particular stock.
The second positive point is stock splits may be seen as a sign of confidence from a company's management. If management decides on a split, it's likely these leaders believe the company has what it takes to deliver more share-price growth over time.
CrowdStrike's explosive growth
Now, let's consider the case of CrowdStrike. The cybersecurity giant has seen explosive growth since its initial public offering back in 2019, with revenue soaring into the billions of dollars, and the stock surging more than 1,300%. Customers have flocked to CrowdStrike's artificial intelligence (AI)-driven Falcon system, offered in modules that allow them to design a platform suited to their needs.
NASDAQ: CRWD
Key Data Points
In fact, the world became so dependent on CrowdStrike that last year a software update glitch led to an outage that brought much global activity to a standstill. The problem has weighed on earnings, with the company offering compensation packages to those affected, and CrowdStrike says these headwinds will continue through this fiscal year. Still, CrowdStrike has maintained solid relationships with customers and continues to deliver double-digit growth.
In the latest quarter, revenue advanced 20% to more than $1 billion, and importantly, annual recurring revenue also climbed in the double digits, to $4.4 billion.
Share repurchases on the horizon
Now, here's another key point that offers us reason to be confident about CrowdStrike: The company announced an authorization allowing it to buy back $1 billion in shares. A company that aims to buy its own shares generally is confident about its own outlook, but here, we're not limited to making assumptions, because Chief Executive Officer George Kurtz specifically said the "announced share repurchase reflects our confidence in CrowdStrike's future."
Against this backdrop, will CrowdStrike announce a split? The company hasn't yet split its stock, so such a move would be a first. Though the level of $500 isn't too intimidating for a tech stock, a stock split at this point could be a wise move for CrowdStrike, since, along with the buyback plan, it would give investors another message of confidence.
On top of this, a lower price point could make it easier for the stock to advance. As mentioned, a stock split opens the door to a broader pool of potential investors.
Of course, it's impossible to predict with 100% accuracy what this cybersecurity giant will decide. But at today's level, CrowdStrike is ripe for a split, and it could represent a positive move for the company.
