After last week’s headline-making announcement from NVDA (disclosure: we own the stock on behalf of clients), do stock splits matter anymore? Hell yes.
According to Yahoo Finance:
“While stock splits have no impact on the underlying fundamentals of a company, nor do they impact a company’s market value, they are a historically bullish signal, according to an analysis from Bank of America. “Average returns one year later are 25% vs. around 12% for the broad market. Splits seem to be bullish across market regimes, something management teams might consider if shares look too expensive for buybacks,” Bank of America said in a note on Thursday.
According to CNBC’s Jim Cramer, who weighed in with more recently announced splits, “They do matter! Just look at CTAS — Flat, LRCX — up, CMG — up, WMT — up, COO — flat to down.”
What does further data say? Let’s look at 10 other high-profile examples from recent years:
In our work, sector analysis is a substantial focus. With the stocks listed above, they’re so varied that I’ve crudely grouped them as tech-related/other.
While the technology names have dramatically outperformed the catch-all group, clearly most of that dominance was provided by one name: Nvidia.
Looking at the overall results more simply: data supports the delivery of Alpha, as 80% of these stocks dramatically outperformed the market following their split announcements.
As growth stock managers, we have long kept an eye out for split candidates and we’ve been fortunate enough to catch a few on the list above for clients.
Regardless whether you think stock splits are a gimmick, there’s good reason to try and front run them, as forward splits have a high likelihood of favorable outcomes compared to the market.
