This decade has ushered in a volatile era on Wall Street, with bear and bull markets interchangeably dominating the scene since 2020. In times of uncertainty, investors tend to gravitate towards established, lucrative businesses that consistently outperform the benchmark S&P 500. The FAANG stocks, over the last ten years, have been prime examples of such reliability.

However, in the last couple of years, companies undergoing stock splits have sparked immense interest within the investing community.

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The Frenzy Over Stock-Split Stocks

A “stock split” is a financial maneuver that allows a public company to adjust its share price and outstanding share count simultaneously. Importantly, this change is purely cosmetic, leaving market cap and operational performance unaffected. While there have been some rare instances of reverse-stock splits like in the case of Booking Holdings, the spotlight remains on high-performing companies executing forward-stock splits. A forward split aims to make a company’s shares more accessible to investors who cannot engage in fractional-share transactions with their brokers.

Since mid-2021, close to twelve notable entities have initiated forward splits, including industry giants like AI leader Nvidia, e-commerce titan Amazon, and retail powerhouse Walmart.

Recently, renowned fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG) announced its plan to join this exclusive league of top performers. Pending shareholder approval, Chipotle aims to implement a 50-for-1 forward split before the market opens on June 26. Despite the unstoppable rise of stock-split stocks in recent times, there are concerns that Chipotle may not sustain its impressive returns going forward.

Chipotle’s Evaluative Eyebrows

Undoubtedly, Chipotle has strongly resonated with consumers due to its sustainable practices and quality offerings. The company’s emphasis on locally sourced produce and responsibly raised meats captures the ethos of a growing segment of consumers seeking superior food choices. Similar to the organic food trend of the early 2000s, Chipotle has found success with customers willing to pay a premium for its fresh, flavorful meals.

Strategic innovations, such as the introduction of “Chipotlanes” in 2018, have significantly bolstered Chipotle Mexican Grill’s trajectory since its IPO at $22 in January 2006, reaching a closing price of around $2,882 per share on March 22, 2024. By maintaining a focused menu and incorporating drive-thru lanes for mobile orders, known as Chipotlanes, the company has streamlined its operations to enhance profitability.

However, Chipotle’s valuation stands as a sore point. The company is currently valued at approximately 45 times Wall Street’s projected earnings per share (EPS) for 2025, nearly double the average forward-year multiple of 24 for S&P 500 restaurant stocks (as of March 2024).

Furthermore, when excluding new restaurant openings, Chipotle’s growth loses some luster. While total sales surged by 14.3% in 2023, comparable-store sales only grew by 7.9%. Within this 7.9%, a 2.9% rise stemmed from an increase in the average check. Essentially, Chipotle’s 45X forward-year earnings multiple hinges on a 5% organic uptick in transactions. Achieving sustained double-digit sales growth, inclusive of new restaurant launches, is imperative for Chipotle to justify its market valuation and propel its share price upwards.

Instead of chasing an overvalued restaurant chain’s stock, investors might want to explore two potential stock-split stocks that are markedly more affordable.

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Exploring Meta Platforms

The first appealing yet inexpensive stock worth considering for a potential split is none other than social media giant Meta Platforms (NASDAQ: META). Since its IPO in 2012, Meta’s board has refrained from implementing a stock split.

While Meta has leveraged its AI connections in recent times, with a focus on developing augmented/virtual reality devices and venturing into the metaverse realm, its primary strength remains its social media prowess. Facebook stands as the most globally visited social platform, with 3.07 billion monthly active users (MAUs) as of the December-ended quarter. Including Instagram, WhatsApp, Threads, and other apps, Meta extends its MAU count to nearly 4 billion, showcasing unmatched reach in the social media landscape. This extensive user base should bolster the company’s advertising rates consistently.

It’s noteworthy that ad-reliant companies like Meta thrive during prolonged economic expansions. Despite inevitable recession cycles, no U.S. recession in the last 78 years has persisted for longer than 18 months. Conversely, growth phases usually span several years.

Additionally, Meta boasts a substantial cash reserve, closing 2023 with $65.4 billion in liquid assets and generating over $71 billion in operational cash flow. This financial strength affords the company ample flexibility for innovation, stock buybacks, and maneuvering through brief recessions.

Despite hovering near its all-time peak of $523, Meta stock carries a forward-year earnings multiple of 24 and touts a price-to-earnings-growth ratio (PEG ratio) of nearly 1, signaling an “undervalued” business historically.

Uncovering AutoZone

Another appealing candidate for a stock split and a more attractive investment opportunity compared to Chipotle is automotive parts retailer AutoZone (NYSE: AZO). Not splitting its stock since April 1994, a single share of AutoZone demands nearly $3,240 from investors as of March 22.

AutoZone’s relentless growth can be attributed to a shift where Americans retain their vehicles for longer durations than ever before. In May 2023, S&P Global Mobility reported that the average age of cars on the road reached a record high, propelling demand for auto parts and services.

AutoZone: Accelerating Profits While Keeping America’s Aging Cars Running Smoothly

The Road Ahead for Auto Parts Suppliers

S&P Global’s recent findings reveal that the average age of vehicles registered in the U.S. stands at 12.5 years, signaling a challenging but lucrative path ahead for auto parts suppliers like AutoZone. As cars age like fine wine, these suppliers are in the driver’s seat, responsible for ensuring that these aging vehicles maintain their vigor and performance.

AutoZone’s Strategic Maneuvers

AutoZone has not been idling by the roadside, waiting for things to happen. Instead, the company has proactively navigated the changing landscape with finesse. To keep pace with the escalating consumer demand, AutoZone is embarking on a mission to establish 200 mega hubs. These hubs, pulsing with up to 110,000 stock keeping units (SKUs), act as vital organs within the distribution network, providing seamless access to parts and catering to customers’ needs swiftly.

Driving Profitability with Share Repurchases

One of AutoZone’s standout features, particularly appealing to investors, is its exceptional share repurchase program. Since the initiation of its share buyback scheme in 1998, the company’s board has greenlit over $37 billion worth of repurchases, with $35.5 billion already in the bag. A staggering 90% of its outstanding shares have been successfully reclaimed, propelling the company’s earnings per share into overdrive.

AutoZone Stock: A Bargain in the Garage

Despite a remarkable 503% surge in its share price over the last decade, AutoZone stock remains a tempting buy for investors. Currently trading at just 19 times forward-year earnings, the company presents an attractively valued opportunity that is hard to resist. It’s a chance to get behind the wheel of a potential stock-split stock that offers substantial upside potential.

Should You Take the AutoZone Investment Highway?

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