Stock splits often make waves in the investing world. They’re the party trick of the stock market, chopping the number of existing shares into smaller, more affordable amounts without changing the company's total value.
Quite simply, a stock split is the division of shares. It’s a way for companies to attract a broader pool of investors while current shareholders receive more shares in their portfolios.
Costco Wholesale (NASDAQ: COST), known for its huge sizes, bulk goods, and unique membership model, is no stranger to stock splits. Since it went public in 1985, the wholesale powerhouse has split its stock several times, proving the company's long-term commitment to maintaining an accessible stock price while still broadening its investor base. The stock splits significance has helped have helped fuel the reputation of Costco as a strong Wall Street performer.
Costco stock performance is soaring and it hasn’t had a stock split in decades, so investors are beginning to wonder if it’s time for another.
Detailed History of Costco’s Stock Splits
In 1993, Costco merged with The Price Club, the first membership warehouse club. The merger created a retail giant with enhanced buying power, operational efficiencies, and an expanded geographic footprint. The combined entity was initially named PriceCostco, eventually adopting the name Costco Wholesale Corporation in 1997, reflecting a unified brand identity.
Let’s take a look at the timeline of historical stock splits, which reflect the company’s long-term consistent growth and commitment to making shares more accessible to a broader investor base.
June 12, 1984: A 2-for-1 stock split, this was The Price Company’s first major split.
February 3, 1986: The Price Company implemented another 2-for-1 stock split.
May 15, 1991: A 2-for-1 stock split, Costco doubled the number of shares and reduced the price per share by half. This split aimed to make the stock more affordable and attractive to retail investors.
March 6, 1992: Costco executed a 3-for-2 stock split. For every two shares held, shareholders received an additional share, increasing the total number of shares by 50% and maintaining an attractive share price for investors.
October 21, 1993: The Price Company utilized a unique 2.13-for-1 stock split as part of the merger preparations, ensuring that the share structure aligned appropriately for the upcoming consolidation.
December 20, 1994: Rather than a traditional stock split, this transaction was a 1-for-1 spin-off of Price Enterprises, Inc. Shareholders received one share of Price Enterprises, Inc. for each share of Costco they held. This spin-off was part of the restructuring following the merger with The Price Company.
January 13, 2000: Costco executed another 2-for-1 stock split. Each share was divided into two, doubling the total number of shares and reducing the price per share by half, continuing Costco's strategy to maintain affordable share prices.
Impact of Previous Stock Splits on Shareholders
Viewed from the perspective of shareholder benefits, Costco's tendency to split its stock has been a bullish signal: in a split, the number of shares rises, but the price per share goes down, dividing up the original value among a higher number of shares. Well, at least at first, that is. Eventually the better pricing can attract additional buyers and increased demand may raise the share price higher. Stock splits also generally lead to increased liquidity, making it easier for investors to buy and sell shares. For Costco, each split has been followed by a period of robust performance, benefiting shareholders through capital appreciation.
Take the 2000 split as an example. Before the 2-for-1 split, Costco stock was trading below $100. The Costco stock value post-split halved that. However, it was not much less than a year later when the share price had reclaimed its value and allowed shareholders to have even more shares. With strong performance and no stock splits since then, Costco’s stock price has shot up.
Historically, stocks that have gone for a split have yielded good performance. They benefit not only from the psychological boost and market activity that usually follows stock split effects on shareholders but also from increased shareholding.
Market Conditions and Current Stock Performance
Costco's stock performance in 2024 is solid and attests to the business's resilience and robust market position. The company's success lies in its membership strategy. Despite low margins, Costco generates major profits from membership fees. Its high renewal rates, surpassing 90% worldwide, provide a reliable revenue stream over time. Costco has also navigated inflation like a pro.
On May 30, Costco released its financial results for the recent quarter. It reported quarterly earnings per share of $3.78, exceeding the predicted $3.70. The company's quarterly revenue reached $58.52 billion, outpacing analysts' projections of $58.16 billion. The business experienced a 9.1% year-over-year revenue growth during the quarter. As of June 20, 2024, the company is up nearly 32% YTD.
With a heavy-dose earnings report, customer loyalties, and innovative business strategies, current market analysis suggests the bulls are at play with this stock. The stock is also trading near $870 — much higher than its past split levels.
Based on this, it is possible that the company will execute a stock split this year. However, a 2-for-1 split would still result in a somewhat high price of around $435 per share. A more significant split ratio, such as 8-for-1, would result in a more accessible share price of just over $100. Although there are no set rules for a split, analyzing past splits by other companies suggests that aiming for a share price of $100 is common.
So far this year, Costco has recorded notable performance, including impressive sales growth and solid rates of renewals, which typically indicate a sturdy financial position. But, of course, the market can be very unpredictable, and companies must restructure themselves to suit the changing situation. A stock split could be a good preventive action to cope with competition and continue its growth.
Several stock market trends could influence Costco's decision on a stock split. First, the trend toward increasing retail sector consolidation suggests a favorable environment for dominant players like Costco. Second, the rise of e-commerce and digital transformation in retail continues to benefit Costco, which has made significant investments in its online platform. Third, the heightened focus on sustainability and corporate responsibility aligns with Costco's initiatives in these areas, potentially attracting more socially conscious investors. Finally, the market's preference for stability and dividend-paying stocks positions Costco as a desirable investment.
Expert Opinions on Potential Stock Split
Many financial analysts and market experts have been crying for another Costco stock split, and the reason is clear: the share price has become too high. They argue that reducing the cost of the stock through a split will attract retail investors and enhance the liquidity and marketability of the share.
Analysts currently rate Costco a Moderate Buy. The consensus of financial analyst insights is that Costco's strong price and consistent performance over time easily make it one of the top picks to split. It would help bring the stock to a wider investor base and might increase demand. The company has a strong track record, and another split could help solidify the Costco stock future in the marketplace.
Although expert stock split opinions point to the potential benefits of a stock split, and a stock split would align with Costco's historical approach to keeping an attractive stock price to broaden its investor base, it’s hard to say whether or not the company will do one. Costco has traded above $100 per share for more than a decade and has not issued another split. In fact, management has been praised for how well they have focused on matters like customer satisfaction and not getting wrapped up in share price movements.
So, Will Costco Issue Another Split?
Considering Costco's history of stock splits, its market performance, and what some experts think, a future stock split for the right reasons could be just around the corner. A new split would make the stock more accessible, create a rise in demand and benefit shareholders. Strategically, a Costco stock split recommendation might very well enhance shareholder value and position it well for growth. However, some think that if Costco hasn’t issued a stock split by now, they might not be planning to do one any time soon.
Regardless of whether a stock split is in the future or not, the Costco financial strategy, unique business model, and solid performance make it a good stock to buy and hold.
