6 Stock Splits to Have on Your Radar

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last updated 26 July 2023

Everyone knows that stock splits mean nothing in relation to the valuation of a company. As Yogi Berra is often quoted as saying: "You better cut the pizza in four pieces because I'm not hungry enough to eat six."

But sometimes the fact of the split, not so much its effect, is the point. It can act as a signal to the market that growth in the underlying company is likely to make the "pie" grow larger.

However, there is one more added benefit to forward stock splits that many analysts and market observers overlook: it makes trading in the underlying asset's options much more affordable.

This is because most options contracts – whether they be puts or calls – represent 100 shares of the underlying stock per contract. And after a company splits their stock, the share price understandably declines, making it cheaper for investors to buy and sell those options.

As one example, Alphabet (GOOGL) underwent a 20-for-1 stock split in July 2022 that effectively reduced its share price from $2,300 to $115. At the time, instead of having to pay $230,000 for 100 shares, investors now only had to spend $11,500 (i.e., 100 x $115). A year later, GOOGL stock is hovering around $130, but investors can more easily buy and sell its call options and put options.

Here, we take a closer look at six companies that have undergone stock splits in recent months. Not every name featured here is a recommendation, but this list of firms that are splitting their shares might be a good jumping-off point for interested investors.

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Disclaimer

Data is as of July 26.

Topics

Nvidia

1/6

Churchill Downs

Market value: $9.9 billion
Stock split: 2-for-1

Churchill Downs (CHDN, $131.58) is a $10 billion racing, online wagering and gaming entertainment company that in late April announced a 2-for-1 stock split. This meant that in May, shareholders received two CHDN shares for each one they previously owned.

The stock split effectively halved CHDN's share price, but it did not change the underlying valuation of the company. For example, analysts forecast $11.56 per share in fiscal 2023 earnings ahead of the split, but estimates are now for earnings of $6.01 per share. This has CHDN trading around a similar price-to-earnings ratio of 22.

And the stock split has no impact on the consumer discretionary stock's growth going forward. Analysts' estimates are for the company's earnings to jump to $7.87 per share in fiscal 2024, representing nearly 31% year-over-year growth.

These growth prospects can make premiums on CHDN stock's call and put options more expensive and more volatile. However, these higher option prices can also provide better income opportunities for investors hedging their positions with covered calls or cash-secured short puts.

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2/6

VanEck Semiconductor ETF

Assets under management: $10.1 billion
Stock split: 2-for-1

The VanEck Semiconductor ETF (SMH, $154.68) is an exchange-traded fund (ETF) that invests in stocks in the information technology, semiconductors and semiconductor production and equipment sectors.

Right now, the tech ETF holds about 25 stocks, many of which have been spiking amid a red-hot run in semiconductor stocks this year. In fact, one of its largest holdings, Nvidia (NVDA) has tripled since the start of 2023.

One reason for this is the loosening of the supply-chain disruptions that occurred during the COVID-19 pandemic.

Additionally, the industry has been soaring since OpenAI released its generative artificial intelligence (AI) ChatGPT chatbot. Semiconductor makers produce the chips needed for the massive computing power needed from generative AI. This makes them the "picks and shovels" of the AI gold rush.

As for its stock split, the VanEck Semiconductor ETF underwent a 2-for-1 share split in May that reduced the SMH share price by half.

While VanEck said it considers "a number of factors" when determining which share splits will most benefit shareholders, " including ETF market price, bid-ask spread and trading volume." For SMH, its split likely came because of the underlying growth in the chip stocks that make up the semiconductor ETF.

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3/6

Monster Beverage

Market value: $60.9 billion
Stock split: 2-for-1

Monster Beverage Corp (MNST, $58.17) is an energy drink company that sells the popular Monster brand name drinks, along with iced teas, juices and alcoholic beverages. The consumer staples stock has done extremely well over the last five years, up close to 90%.

As a result, Monster Beverage in late February declared a 2-for-1 stock split that went into effect in March. Since the split, MNST stock is up more than 14%. So now shareholders get to own two shares for every one they held before and, in addition, they have had an unrealized capital gain.

Plus, it is now much cheaper to buy 100 shares of MSNT stock that can be used to create income with a covered call strategy. For example, prior to the split, Monster Beverage was trading over $100, meaning shareholders had to spend roughly $10,000 to purchase the 100 shares needed to implement a covered call.

Now, even after the stock price appreciation, it costs about $6,000 to buy 100 shares of MNST.

Keep in mind that despite its lowered share price, MNST stock is not cheap. For example, analysts project fiscal 2023 earnings will be $1.54 per share, translating into a high valuation of 37.7 times earnings.

Moreover, Monster Beverage does not pay a dividend. So, shareholders looking to gain income from the stock would need to sell a covered call option in order to do so.

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4/6

Meridian

Market value: $125.6 million
Stock split: 2-for-1

Meridian (MRBK, $11.24) is the holding company for a bank that operates in several states, including Pennsylvania, New Jersey, Delaware, Florida and Maryland.

In March, the company "reaffirmed" its decision to do a 2-for-1 stock split – effectively lowering the stock price by half. This was notable as the stock split occurred in the midst of the regional banking crisis, when several financial stocks were getting decimated. The original decision to split the stock was made prior to the spring banking crisis.

At the time, Christopher J. Annas, chairman and CEO of Meridian, said that the stock split would "allow for greater participation of shareholders on a local level. These shareholders can be new customers, or influencers to broadcast Meridian's exceptional financial products and services."

The CEO was using the split as a marketing maneuver to bring in new shareholders and customers. Moreover, it has also become an opportunity for investors seeking out value stocks.

Not only does Meridian have an attractive dividend yield of 4.6%, but it's trading at just 7.3 times earnings. So now, investors can buy into the bank stock at a cheap valuation. However, there are no options traded in MRBK so the benefit mentioned with several of the other stock splits featured here does not apply.

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5/6

Greene County Bancorp

Market value: $564.8 million
Stock split: 2-for-1

Greene County Bancorp (GCBC, $33.17) is a regional bank holding company for The Bank of Greene County. It is based in Catskill, New York, which is the county seat for Greene County.

In late February, Greene County Bancorp's board of directors approved a 2-for-1 stock split for shareholders of GCBC stock. In early March, they received one new GCBC share for every existing share they owned.

Like Meridian, the GCBC stock split happened right before the regional banking crisis hit in March. As a result, the GCBC fell due to the combination of the split and the subsequent pressure on regional banking stocks.

However, the stock has since rebounded and is now up roughly 35% since mid-March. So, even though there are no options traded for GCBC stock, investors have benefited from the stock split. The CEO said so in a statement indicating that the split enhanced the investment value and liquidity of the stock, given its stock price and earnings gains.

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6/6

Palo Alto Networks

Market value: $74.9 billion
Stock split: 3-for-1

Palo Alto Networks (PANW, $245.01) is a very profitable cybersecurity solutions and firewall software company. In 2022, the company announced a 3-for-1 stock split. This action gave shareholders two new PANW shares for each one they held prior to the split.

Since then, PANW has moved higher. For example, on Sept. 6, 2022, the cybersecurity stock was at $176.85, but it's now trading closer to the $250 per-share mark.

Moreover, given the two new shares for every one held, the stock price declined by two-thirds from prior to the split. This made it significantly cheaper to buy 100 shares for options trading purposes.

This does not necessarily mean that the stock is any cheaper from a valuation standpoint. For example, analysts expect the company to report earnings of $4.27 per share for the year ending July 2023, creating a lofty price-to-earnings ratio of 53.4.

However, given that the company is growing quickly, analysts project earnings for fiscal 2024 will rise 17% to $5.01. That lowers the multiple to "just" 48.9 times forward earnings.

But this is typical of growth stocks. You have to pay up for the earnings, but the stock will keep rising as long as the earnings come through. The stock split signals the fast growth in underlying earnings of the company. And the 3-for-1 stock split makes it much easier for shareholders to hedge their bets on the stock with options.

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Mark R. Hake, CFA, is a Chartered Financial Analyst and entrepreneur. He has been writing on stocks for over six years and has also owned his own investment management and research firms focused on U.S. and international value stocks, for over 10 years. In addition, he worked on the buy side for investment firms, hedge funds, and investment divisions of insurance companies for the past 36 years. Lately, he is also working as Chief Strategy Officer for a tech start-up company, Foldstar Inc, based in Princeton, New Jersey.