Move Over, Walmart and Chipotle: Wall Street Has a New Stock Split - Latest Global News

Move Over, Walmart and Chipotle: Wall Street Has a New Stock Split

Volatility is inevitable for investors on Wall Street. With the exception of 2024, we have experienced this Dow Jones Industrial Average, S&P 500And Nasdaq Composite Since the beginning of this decade, there has been a fluctuation between bear and bull markets in successive years.

During times of increased volatility and uncertainty, professional and everyday investors typically turn their attention to companies with a history of outperformance. Over the last three years, companies that have implemented stock splits have proven to be quite successful.

A close-up of the word

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Investors rightly gravitate towards stocks with stock splits

A “stock split” is an event that allows a publicly traded company to change its stock price and the number of shares outstanding. It is a purely cosmetic change in the sense that adjusting a company’s stock price and share count by the same factor has no impact on its market capitalization or operating performance.

Forward stock splits are designed to make a company’s shares nominally more affordable to ordinary investors who may not have access to purchasing fractional shares through their online broker. Meanwhile, reverse stock splits aim to increase a company’s share price to ensure it meets minimum listing requirements on a major stock exchange.

Basically, most investors look for companies that do stock splits. A publicly traded company with rapidly rising shares often has clearly defined competitive advantages and in many cases has outperformed the competition. In other words, forward stock splits can serve as a beacon to alert investors to Wall Street’s top companies.

Since mid-2021, nearly a dozen top companies have decided or announced a forward split, including companies like Nvidia, AmazonAnd alphabet. Earlier this week, another brand-name company announced its intention to join this elite group of stock split stocks.

Walmart and Chipotle Mexican Grill are in the spotlight for stock splits in 2024

After a relatively quiet 2023, in which only a few top companies announced stock splits (e.g. Monster drink And Novo Nordisk), the year 2024 started with a bang.

Late January retail titan Walmart (NYSE:WMT) announced plans to do a 3-1 split. The purpose of this split, which was Walmart’s first in nearly a quarter century, was to make it easier for its employees to participate in the company’s Associate Stock Purchase Plan. By reducing the share price by three times, it will be easier for employees to purchase whole shares.

Walmart’s long-term outperformance — and the reason its stock earned a 3-to-1 split on Feb. 26 — can be explained by its size. The company’s large financial resources allow it to purchase products in large quantities and at a lower cost than its competitors. It constantly undercuts grocery chains and local stores on price, which is a clear enticement for consumers.

Walmart stores also carry a wide selection of Stock Keeping Units (SKUs). This not only helps the company sell higher-margin consumer products, but also encourages consumers to make Walmart their one-stop shopping destination.

The other superstar taking center stage in 2024 is the fast-casual restaurant chain Chipotle Mexican Grill (NYSE:CMG). In mid-March, Chipotle’s board announced plans to conduct a 1-for-50 forward split that would take effect on June 26 (assuming shareholders approve the split at the company’s annual meeting in June).

Similar to Walmart, Chipotle is conducting a split to make it easier for its employees to access its stock, worth nearly $3,200 per share. If shareholders give Chipotle the green light, its shares will trade closer to $64 by the end of June.

Chipotle Mexican Grill’s stock has risen more than 14,300% since its initial public offering in January 2006 reflects consumers’ willingness to pay more for healthier foods. Additionally, the Company’s limited menu helps its employees prepare meals quickly, ensuring a timely delivery process to in-store and drive-thru (“Chipotlane”) customers.

But it’s time for Walmart and Chipotle to move on, because there’s another high-profile company ready to share the stock split spotlight.

A parent and child sit on a couch and hold controllers while playing video games.A parent and child sit on a couch and hold controllers while playing video games.

Image source: Getty Images.

Say hello to Wall Street’s latest stock split

On May 14th, the juggernaut of consumer electronics Sony Group (NYSE:SONY) threw his hat in the ring and announced his intention to implement a 5-1 forward split.

Although the effective date of the stock split is set for September 30, the effective date will be slightly different for the shares listed in Japan and American Depository Receipts (ADR) in the US, while the shares in Japan will trade at a reduced par value the US ADRs came into effect on October 1st at the share price on October 1st, the record date is October 8th. Once this split is complete, Sony Group’s U.S. shares will fall to around $16 from the $81 they closed at on May 14.

Most people know Sony because of its long-standing association with the gaming industry. The company’s PlayStation 5 gaming console launched back in November 2020, so it’s not too surprising that unit sales haven’t been particularly strong recently.

Fortunately, Sony has seen a strong increase in PlayStation Plus revenue. PlayStation Plus is the company’s gaming subscription service, which costs between $10 per month and $160 per year, depending on the subscription level. It allows subscribers to back up their saved game data to the cloud and participate in multiplayer games with friends. The key point here is that subscription revenue tends to generate predictable, high-margin revenue year after year.

But Sony Group offers more than just its PlayStation gaming console. For example, the company is one of the most important manufacturers of image sensors used in next-generation smartphones. Including favorable foreign exchange rates, imaging and sensing solutions sales increased 14% in the company’s most recent fiscal year (which ended March 31). With global smartphone sales expected to rise slightly this year, Sony should be a clear beneficiary.

Wall Street’s latest stock split also boasts a profitable film entertainment segment. Sony Pictures reported 9% revenue growth last year, with an increase in theatrical releases paving the way for this growth. Sony Pictures is also working with private equity firm Apollo Global Management and is considering a firm offer for the legacy media company Paramount Global. The two companies recently sent a non-binding offer to Paramount’s board that would take the company private at a valuation of $26 billion, including the assumption of debt.

The icing on the cake for the Sony Group and its shareholders is that, in addition to the 1:5 stock split, the company has also announced an authorization to buy back shares. A maximum of 30 million shares can be repurchased over the next year, representing nearly 2.5% of the company’s outstanding shares (based on the number of shares outstanding after the upcoming separation).

For proven companies with stable or growing net income, buybacks can increase earnings per share (EPS) and make a company’s stock appear more attractive to fundamentally-oriented investors.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams has held positions at Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Chipotle Mexican Grill, Monster Beverage, Nvidia and Walmart. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Move Over, Walmart and Chipotle: Wall Street Has a New Stock Split was originally published by The Motley Fool

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