The Stock Split Announcement All of Wall Street Is Waiting for Is Back on the Table -- and It's Not Netflix or Costco!

Several non-tech companies, including Fastenal, O'Reilly Automotive, and Interactive Brokers Group, have recently completed forward stock splits, a trend that has historically correlated with outperformance versus the S&P 500. While high share price and retail investor interest are key factors, the market is now eyeing Meta Platforms as the next potential candidate for a split, given its rebounding share price, significant retail ownership, and strong cash position, despite the board of directors of Costco Wholesale expressing no interest in conducting a split.

Analysis

The market's recent gains are being driven not only by artificial intelligence but also by a notable trend of forward stock splits among influential, non-technology companies. Analysis from Bank of America Global Research indicates that since 1980, companies have historically outperformed the S&P 500 in the 12 months following a split announcement, with an average gain of 25.4% versus the index's 11.9%. This trend is currently exemplified by recent splits from Fastenal (FAST), O'Reilly Automotive (ORLY), and Interactive Brokers (IBKR), all of which are supported by strong underlying business fundamentals such as robust client relationships, aggressive share repurchase programs, and technology-driven growth, respectively. The focus now shifts to Meta Platforms (META) as the most anticipated candidate for a future split. With its share price rebounding to around $700, the case is compelling due to a significant retail investor base (over 27%), which contrasts with other high-priced stocks like Netflix (NFLX) that have low retail ownership. Meta's potential is further bolstered by its formidable operational metrics, including 3.43 billion daily active users, dominant advertising power, over $70 billion in cash, and a $96 billion annual run-rate in net cash from operations. Despite its strong performance, Meta's forward price-to-earnings ratio of 24 is presented as inexpensive, suggesting that a stock split could act as a significant positive catalyst for a company with an already strong fundamental outlook.

Key Decisions for Investors

• Investors should evaluate Meta Platforms based on its strong fundamentals and the additional potential catalyst of a stock split, which has historically been associated with significant share price outperformance in the subsequent year.
• When screening for potential stock-split candidates, it is crucial to consider factors beyond a high share price, such as a large retail investor base and management's posture, as exemplified by Costco's decision not to split despite its valuation.
• Given the historical data on post-split performance, consider tactical positioning in fundamentally sound, high-priced stocks that fit the profile of a likely split candidate, while recognizing that a split does not change the company's intrinsic value.
• Monitor the performance of recent non-tech splitters like O'Reilly Automotive and Interactive Brokers, as their trajectory could provide insights into the current market's reception of such corporate actions outside the tech sector.