Stock splits are seeing a renaissance. During the last 15 years, we have been in the midst of a raging bull market with minimal interruptions, leading to big winning stocks trading at sky-high prices. To make it easier to gift stock options to employees and for small-time investors to buy shares, companies have started to implement more stock splits. Amazon, Nvidia, and Chipotle are recent stock split examples, but there are many others out there.
Investors have built up a narrative that stock splits drive value. There is an idea that by making a stock trade at a lower price but with a larger total amount of shares outstanding, the stock is somehow cheaper. Does this narrative hold up in reality? Let’s take a look at a stock split candidate — Costco (NASDAQ: COST) — to investigate this phenomenon and whether you should buy ahead of a potential stock split announcement.
Costco’s upcoming one-comma milestone
Costco stock is up around 650% in the last five years and recently surpassed $900 a share. If it goes up by a little more than 10%, it will reach the $1,000 milestone. A true testament to the durable growth of the low-price membership retail model, Costco is now one of the largest companies in the United States with a market cap of $400 billion.
The stock has posted a 150,000% total return since going public over 40 years ago (total returns include dividend reinvestment), making it one of the best-performing stocks ever. For any investor who has held since the early days, a $1,000 investment would be worth $1.5 million now.
Along the way, Costco has implemented two stock splits due to its rising stock price. One in 1993, and one in 2000. With its price closing in on four digits, investors are likely expecting Costco to implement another stock split sometime soon. When a stock price gets over $1,000 a share, management teams will generally look to split the stock to make it more affordable for investors with small sums of money and to have more flexibility to gift employees smaller slices of stock as a form of income.
Examples of recent stock splits around $1,000…
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