Forward stock splits usually follow significant share-price appreciation, which rarely happens to inferior companies. For that reason, many investors see stock splits as roundabout indicators of quality. But the price appreciation (not the subsequent split) is where investors should focus.
Shares of Microsoft (NASDAQ: MSFT) and Intuit (NASDAQ: INTU) soared 541% and 437%, respectively, over the last seven years. That price appreciation qualifies both companies as stock-split candidates. More importantly, it hints at some competitive advantage that has translated into long-term outperformance. Investors should strive to own such stocks.
Indeed, Wall Street analysts see Microsoft and Intuit as worthwhile investments right now whether or not they split their stocks in the future. Microsoft carries a median price target of $475 per share that implies 22% upside from its current price. And Intuit carries a median price target of $720 per share that implies 15% upside from its current price.
Here’s what investors should know.
Microsoft: 541% return over the last 7 years
Microsoft has two important growth engines in enterprise software and cloud computing. The company has a virtual monopoly in office-productivity software (Microsoft 365), and it has a strong presence in enterprise resource-planning software and low-code development tools. In total, Microsoft accounted for 18% of commercial software sales in 2023, and it’s forecasted to gain share as generative artificial intelligence (AI) copilots become larger revenue streams in the coming years.
Additionally, while Microsoft Azure still trails Amazon Web Services (AWS) in cloud-infrastructure and platform-services sales, Microsoft narrowed the market-share gap from 11 points in 2021 to 7 points in 2023, according to Statista. Microsoft’s strength in AI, as well as its strong presence in cloud-based data and cybersecurity solutions, could help it take more share in the future. Indeed, Morgan Stanley thinks Azure could surpass AWS by 2027.
Microsoft reported solid financial results in the fiscal third quarter (ended…
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