Though artificial intelligence (AI) has been the primary S&P 500 (^GSPC 0.27%) catalyst for nearly three years, it's not the only two-word phrase that'll perk up investors on Wall Street. Mentioning "stock splits" is another easy way to garner attention.
A stock split allows a publicly traded company to increase or decrease its share price and outstanding share count by the same magnitude. These adjustments are purely cosmetic, with neither a company's market cap nor operating performance being affected by these changes.
However, investors approach the two types of splits very differently. For example, reverse stocks splits, which aim to increase a company's share price, are usually shunned by investors. Businesses conducting reverse splits are often doing so from a position of operating weakness and attempting to avoid delisting from a major stock exchange.
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But it's a completely different story for businesses announcing and completing forward splits. This type of split is designed to make a company's shares more nominally affordable for retail investors who aren't able to purchase fractional shares through their broker. Companies that need to enact a forward split are usually outpacing their peers in a variety of ways.
Furthermore, forward stock-split stocks have a knack for handily outperforming the benchmark S&P 500 in the 12 months following their split announcement.
But not every company completing a forward split is automatically worth buying. What follows is a magnificent stock-split stock that's gained more than 157,000% since its public debut and is worth buying in September, as well as another forward split that investors would be wise to completely avoid.
Ninth time is the charm for Fastenal
To date, three prominent forward stock splits have taken place, along with the most anticipated reverse split of the year. Among these brand-name businesses, wholesale industrial and construction supplies distributor Fastenal (FAST 0.36%) stands out for all the right reasons.
Stock splits might as well be part of Fastenal's corporate culture. Since its initial public offering (IPO) in August 1987, it's completed nine forward splits. This includes an initial 3-for-2 stock split in 1988, followed by eight 2-for-1 splits, which occurred in 1990, 1992, 1995, 2002, 2005, 2011, 2019, and on May 21, 2025.
The reason nine forward splits have been necessary is that Fastenal shares have climbed more than 157,000% since its IPO. This is a reflection of macro headwinds working in its favor over long periods, as well as company-specific innovations paying dividends.
As a wholesale supplier of goods used by industrial and construction businesses, Fastenal is intricately tied to the health of the U.S. and global economy. Though recessions are a normal and inevitable aspect of the economic cycle, they're historically short-lived. Over the past 80 years, the average U.S. recession has resolved in just 10 months. Meanwhile, the typical economic expansion has endured for roughly five years. Over a multidecade period, Fastenal's business has benefited from U.S. economic growth.
But there's more going on here than just economic expansion working in Fastenal's favor. The company's innovative prowess is on full display, and it's strengthening existing customer relationships. For instance, its managed inventory solutions, which includes on-site internet-connected vending machines (FASTVend), as well as its FASTBin inventory tracking technology, have helped it better understand the supply chain needs of its clients.
Something else worth noting is that a majority of Fastenal's net sales derive from close-knit customers. "Contract sales," which are multi-site, local, regional, and government customers considered to offer significant sales potential for Fastenal, made up more than 73% of net sales during the June-ended quarter. Continuing to lean on these time-tested clients has pushed Fastenal's operating cash flow notably higher.
The only real knock against Fastenal stock is that it's not cheap. Investors are currently paying 40 times forward-year earnings for a company that's growing at a much faster pace than its peers. While this might leave shares susceptible to short-term downside, the long-term upside in Fastenal stock is undeniable.
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A $7 billion valuation for an early stage drug developer? No, thanks.
On the other end of the spectrum is a stock-split stock that's a true head-scratcher.
Earlier this year, shares of clinical-stage traditional Chinese medicine (TCM) company Regencell Bioscience Holdings (RGC 6.38%) caught fire. At one point, its shares had gained more than 60,000% since 2025 began. This parabolic climb is what incented the company's board to announce and complete a 38-for-1 forward split, which became effective following the closing bell on June 13.
While forward stock splits have a history of outperforming the S&P 500 in the 12 months following their split announcement, this company is likely to be the exception.
To begin with, Regencell is a very early stage TCM developer. It hasn't generated a dime in revenue since it commenced operations in 2015, and it doesn't appear to be particularly close to the commercialization stage. We know this, because the company's laundry list of risk factors outlines its shortcomings.
In particular, Regencell Bioscience notes that "we have not yet demonstrated the ability to successfully complete large-scale, pivotal research studies." Despite never undertaking a large-scale study or generating a cent in revenue, Regencell is bordering on a nearly $7 billion market cap, as of the end of August.
Something else noteworthy about Regencell's risk factors is the shaky nature of its patents. The company suggests it may not be able to defend its patents against third parties or keep the few employees it has from divulging company secrets.
Continuing down the line, Regencell Bioscience also sports a going concern warning. This type of warning is assigned to businesses whose current assets outpace their current liabilities over the coming 12 months. While it's not uncommon for small-scale/early stage biotechnology companies to be operating under a going concern warning, it's quite odd to see this from a company with a $7 billion market cap. It strongly suggests that dilutive share offerings to raise capital are eventually coming.
There isn't a logical reason that explains why an early stage, money-losing TCM company with no prospect of commercialization and no experience with large-scale clinical studies is commanding a $7 billion market cap. At some point in the not too distant future, this stock is likely to crater.
