Although artificial intelligence (AI) has been dominating headlines for the last three years, it's not the only trend making waves on Wall Street. Investors have also been gravitating to industry-leading companies conducting stock splits.
A stock split is an event that allows a publicly traded company to adjust its share price and outstanding share count by the same factor, without affecting its market cap or underlying operating performance. After a seven-week wait, we have our first blockbuster stock split announcement of the year, courtesy of online travel company Booking Holdings (BKNG 2.39%).
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Stock-split stocks outperform and cater to retail investors
Though there are two types of stock splits, forward and reverse, investors flock to the former. Companies that have to lower their share price to make it more nominally affordable for investors who can't purchase fractional shares through their broker are almost always doing something right. In other words, these are businesses that are out-innovating and out-executing their peers.
Furthermore, stock-split stocks have a history of outperforming Wall Street's benchmark index, the S&P 500 (^GSPC 1.52%). Since 1980, companies have averaged a 12-month return of 25.4% following a forward stock split announcement, which is more than double the S&P 500's 12-month return in the comparable year. Given this outperformance, it's no wonder investors seek out stock-split stocks.
Lastly, forward splits cater to retail investors. Over time, everyday investors have accounted for a larger percentage of total equities trading volume on Wall Street. Keeping retail investors engaged and ensuring they have a way to invest is becoming increasingly important.
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Booking Holdings will enact a historic 25-for-1 forward split
On Feb. 18, when the parent company of Booking.com, Priceline, and Kayak reported its fourth-quarter and full-year operating results, Booking Holdings announced that its board had approved a historic 25-for-1 forward split, which will go into effect on April 2. This split announcement follows a 27,400% move higher in its shares over the trailing 25-year period, including dividends.
With Booking's shares ending the Feb. 18 trading session at $4,007.45, the company's largest-ever stock split will reduce its nominal share price to around $160. This should make it easier for retail investors to buy its stock (if they can't already purchase fractional shares).
NASDAQ: BKNG
Key Data Points
Booking's four-digit share price reflects its sustained superior growth rate in online travel services. Aside from enjoying outsize growth in international markets, Booking's success has been driven by its long-term Connected Trip strategy. By leveraging generative AI to tailor suggestions to individual users, Booking Holdings has turned a single booking, such as a flight, into integrated revenue streams that include car rentals, hotel stays, and attraction purchases. Keeping more revenue within its ecosystem is a clear competitive edge.
Additionally, the company has quietly implemented an impressive share repurchase program. Since 2014, more than 38% of Booking's outstanding shares have been bought back. For companies with steady or growing net income, a steady diet of share buybacks can meaningfully increase earnings per share.
Although Booking Holdings is unlikely to be the only blockbuster stock-split stock of 2026, it holds the distinction of being the first.
