Costco and Netflix may be poised to become the next companies to split their stocks, according to Wall Street speculation.
In the world of finance, stock splits are a topic of interest for many investors. However, not all companies are equally likely to undergo this event. Let's take a closer look at the current situation with Netflix, Costco, and a few other notable companies.
Retail investors, who often drive stock splits due to their desire for more affordable share prices, currently own 19.8% of Netflix's outstanding shares. This figure is not high enough to necessitate a split at the moment, as institutional investors, who manage large assets, do not require a lower nominal share price to purchase Netflix stock.
Costco, on the other hand, is close to $1,000 per share and hasn't conducted a forward split since 2000. The management team and board members believe that the widespread availability of fractional-share buying has made a stock split unnecessary at this time.
Companies like NVIDIA, known for their strong growth in AI and technology sectors, are seen as probable candidates for stock splits in 2023. Interactive Brokers (IBKR) is also noted for its strong performance and may be watched for similar moves. However, explicit predictions for 2023 stock splits remain limited primarily to these firms, based on recent market analyses.
Historically, companies that have enacted forward stock splits have averaged a 25.4% return in the 12 months following their initial announcement, compared to a 11.9% average one-year return for the S&P 500. This suggests that companies that choose to split their stock often outperform their peers.
However, it's important to note that reverse stock splits are generally viewed negatively, as they are usually conducted by struggling businesses trying to avoid delisting from a major stock exchange.
Neither Costco Wholesale nor Netflix are eager to become Wall Street's next stock-split stock due to the increased availability of fractional-share purchases, reducing the urgency to conduct a stock split. Nevertheless, Netflix's board may still announce a stock split in the future if retail investor ownership increases significantly.
For companies like AutoZone, FICO, and Booking Holdings, retail investor ownership levels of 10% or 11% are not high enough to incentivize a stock split, given the low involvement of retail investors in these companies' share structures.
Some investors are looking to Costco Wholesale and Netflix to be this year's blockbuster stock split, as both companies have high nominal share prices and haven't split their stock in a long time. However, the ultimate decision rests with the companies' boards and their assessment of the market conditions and their shareholders' needs.
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