Although artificial intelligence (AI) has been dominating headlines for more than a year, companies enacting stock splits have quietly and quickly become another hot trend on Wall Street that investors can't get enough of.
A stock split is an action a publicly traded company can take that allows it to cosmetically alter its share price and outstanding share count by the same factor. It's superficial in the sense that adjusting a company's share price and share count by the same magnitude has no effect on its market cap or operating performance.
Image source: Getty Images.
Stock splits come in two forms: forward and reverse. A reverse stock split increases a company's share price, which is typically done to ensure that it meets the continued minimum listing standards of a major stock exchange. By comparison, a forward stock split reduces a company's share price, which makes it more nominally affordable for everyday investors and/or employees who might not have access to fractional-share purchasing.
Most investors focus on companies conducting forward splits, because these are the type of splits completed from a position of operating strength.
Stock-split euphoria is in full effect
Since 2024 began, a dozen high-profile companies have announced and/or completed stock splits:
- Walmart (NYSE:WMT) completed a 3-for-1 stock split following the close of business on Feb. 23.
- Nvidia (NASDAQ:NVDA) enacted its largest stock split in history, 10-for-1, after the closing bell on June 7.
- Amphenol (NYSE:APH) wrapped up a 2-for-1 forward split on June 11.
- Chipotle Mexican Grill (NYSE:CMG) conducted a historic 50-for-1 split after the closing bell on June 25.
- Mitsui (OTC:MITSY) (OTC:MITSF) enacted a 2-for-1 stock split on July 1.
- Williams-Sonoma (NYSE:WSM) finalized a 2-for-1 stock split after the closing bell on July 8.
- Broadcom (NASDAQ:AVGO) accomplished its first-ever split, 10-for-1, after the close of business on July 12.
- MicroStrategy (NASDAQ:MSTR) plans to complete a 10-for-1 forward split after the close of business on August 7.
- Cintas (NASDAQ:CTAS) will undertake a 4-for-1 stock split come Sept. 11.
- Sirius XM Holdings (NASDAQ:SIRI) announced its intent to complete a 1-for-10 reverse stock split in the third quarter, once it merges with Liberty Media's Sirius XM tracking stock, Liberty SiriusXM Group.
- Lam Research (NASDAQ:LRCX) has approved a 10-for-1 stock split, which'll take effect after the closing bell on Oct. 2.
- Sony Group's (NYSE:SONY) American depositary receipts (ADRs) will undergo a 5-for-1 split on Oct. 8.
However, not all stock-split stocks are created equally. While all 12 of these companies have driven investor interest in one way or another, their value propositions greatly differ.
For example, Nvidia has been Wall Street's top-performing megacap stock since the start of 2023. The company's H100 graphics processing unit (GPU) has rapidly become the go-to chip for businesses running AI-accelerated data centers. As a result, Nvidia's market cap has catapulted by more than $2.5 trillion!
Although Nvidia's sales and profits have soared, it's stock isn't exactly cheap. Based on Wall Street's aggressive growth forecast for the company, it's valued at roughly 32 times forward-year earnings. While this isn't an egregious overvaluation, it does make Nvidia one of the pricier stock-split stocks right now. Nothing short of perfect execution will be tolerated by Wall Street and investors, which seems highly unlikely with external and internal AI GPU competition picking up.
If you're looking to uncover incredible bargains, the following three companies are Wall Street's cheapest stock-split stocks.
Image source: Sirius XM.
Sirius XM Holdings: Forward price-to-earnings ratio of 10.6
When it comes to phenomenal deals among stock-split stocks, satellite-radio operator Sirius XM takes the cake. Shares of the company are currently valued at less than 11 times forecast earnings per share (EPS) in 2025.
The best thing about Sirius XM might just be is revenue breakdown. Most terrestrial and online radio operators generate the bulk of their revenue from advertising. While this is a great strategy during periods of expansion for the U.S. economy, it can be troublesome when businesses pare back their marketing during economic slowdowns and recessions.
Though Sirius XM did generate close to 19% of its sales from advertising (via Pandora, which it acquired in early 2019) in the March-ended quarter, it brings in the lion's share of its revenue (almost 78% of net sales) from subscriptions. The company's subscribers are less likely to cancel their service than businesses are to pare back their ad spending during recessions. This makes Sirius XM's operating cash flow more predictable and transparent than virtually every other radio operator.
To add to the above, Sirius XM is the only licensed satellite-radio operator. Even though it's facing competition for listeners from traditional radio operators, being the only licensed satellite-radio provider affords it superior subscription pricing power.
Sirius XM Holdings isn't going to knock investor's socks off with its growth rate, but its cash flow consistency and 3% dividend yield certainly merits more than a forward price-to-earnings (P/E) ratio of 10.6.
Mitsui: Forward price-to-earnings ratio of 11.9
If not for recent weakness in Sirius XM's stock, one of Warren Buffett's eight "forever" holdings at Berkshire Hathaway would currently be the cheapest stock-split stock. I'm talking about Japanese trading house Mitsui, which has a forward P/E ratio of less than 12.
The beauty of the Mitsui's operating model is that it's dabbling in a little of everything. It operates in the oil, gas, and energy industries; manufactures steel; provides specialty chemicals; and invests in a variety of sectors and industries. It's the true definition of a conglomerate.
Although Japan's growth rate has trailed most developed countries over the last couple of decades, periods of growth tend to last substantially longer than recessions. The advantage of putting your money to work in a conglomerate is that broad-based businesses are able to take advantage of these extended periods of growth.
Buffett is also a huge fan of Japan's five trading houses because their management teams take home reasonably low levels of compensation. Mindful spending on the C-suite can allow for more robust capital-return programs for shareholders.
When Mitsui's board announced plans to split its stock 2-for-1, it also green-lit a share buyback program worth up to $1.3 billion. If the entirety of this authorized buying power is put to work, Mitsui can retire as much as 2.64% of its outstanding shares. For companies with steady or growing net income, like Mitsui, buybacks can provide a boost to EPS.
Sony Group: Forward price-to-earnings ratio of 17
The third-cheapest stock-split stock on Wall Street is none other than Japan-based consumer electronics powerhouse Sony Group. Based on Wall Street's consensus forecast, shares of Sony can be scooped up for a reasonable 17 times forward-year EPS.
Sony is probably best known for its gaming prowess. Although we're still a few years away from the next iteration of the PlayStation console making its debut, the company's PlayStation Plus subscription revenue is still climbing. PlayStation Plus is Sony's high-margin, multitiered service that allows gamers to play with their friends, access exclusive games, and save their gaming data in the cloud.
As I pointed out earlier this week, it wouldn't be a surprise to see Sony Group's stock rally prior to the debut of its next-generation gaming console. It's not uncommon for the company's gaming segment to see a big pop in sales when new consoles arrive.
In addition to its well-known gaming division, Sony is also a key player in image sensors used in smartphones. Wireless companies upgrading their networks to support 5G download speeds have encouraged a steady device replacement cycle among consumers and businesses. This upgrade cycle has spurred demand for products in Sony's image and sensing solutions segment.
Finally, Sony Group's board has approved the repurchase of up to 30 million shares of its stock on a post-split basis. If fully executed, nearly 2.5% of all outstanding shares can be retired.
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Sean Williams has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway, Chipotle Mexican Grill, Lam Research, Nvidia, Walmart, and Williams-Sonoma. The Motley Fool recommends Broadcom and Cintas. The Motley Fool has a disclosure policy.
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