Stock splits don’t do anything to change the fundamentals of a business, but it’s not hard to see why some investors have been paying attention to them lately. By dividing its stock into a larger number of shares, a company brings the price per share down and makes investing more psychologically appealing and accessible for some investors. Sometimes, this can help power substantial valuation gains, but that’s not always the case.
On the heels of recent sell-offs, Nvidia stock is actually now trading below its closing price on the day of its 10-for-1 split in June. While the artificial intelligence (AI) leader could come roaring back, investors may want to diversify their positioning and look into some other stock-split investment opportunities.
With that in mind, read on to see why two Motley Fool contributors think that Super Micro Computer (NASDAQ: SMCI) and Williams-Sonoma (NYSE: WSM) are stock-split stocks that have attractive upside potential at today’s prices.
A contrarian bet on Super Micro Computer could have big payoffs
Keith Noonan: Super Micro Computer’s stock price has been highly volatile lately. The server technologies specialist had been riding high this year thanks to demand for AI processing, but the company’s share price tumbled in August after gross margins in its most recent quarterly report missed expectations. Soon after, Hindenburg Research published a short report on the company alleging serious issues with its accounting as well as fundamental business weakness. The very next day, Supermicro (as it is also known) announced that it was delaying the filing of its annual 10-K report.
Supermicro stock still trades up roughly 37% year to date, but the company’s share price is now down roughly 67% from its high set in March. Even with the valuation pullback, the stock is still headed for a 10-for-1 split that will become effective on Oct. 1. For risk-tolerant investors, buying Supermicro shares could be worthwhile on the heels of recent sell-offs.
Supermicro is coming off of fantastic growth in fiscal 2024 (ended June 30). Annual sales rose roughly 110% to hit $14.94 billion, and non-GAAP (adjusted) earnings per share rose 87% to $22.09 per share. Strong momentum looks poised to continue in the near term.
For the first quarter of fiscal 2025, Supermicro is guiding for sales to come in between $6 billion and $7 billion — good for growth of roughly 207% year over year at the midpoint of the guidance range. Meanwhile, adjusted earnings per share are projected to be between $6.69 per share and $8.27 per share — representing growth of 118% at the midpoint.
Supermicro stock trades at just 11.3 times this year’s expected earnings — a level that looks cheap even with the understanding that the business will be subject to cyclical demand trends and moderating sales and earnings momentum. Crucially, the company recently reaffirmed that it doesn’t expect to have any material revisions for the sales and earnings results it reported last year when it files its delayed 10-K report.
While there’s some uncertainty on the horizon, Supermicro’s dramatic valuation pullback could present a worthwhile entry point ahead of its stock split next month.
Short-term factors create a long-term opportunity
Jennifer Saibil: If you’re looking for a good investment deal, Williams-Sonoma stock is a great candidate on any day. A recent stock split just confirms that the company sees more good times ahead.
Williams-Sonoma stock split in two in July after gaining 136% in one year. However, it disappointed investors with its earnings update right after, and its stock trades down about 10% since the split. Fear not, though. This is a reaction to short-term factors and doesn’t discredit the long-term potential.
Just three months earlier, the company wowed investors with a strong first-quarter earnings report. It reported incredible profitability despite a sales decline, and that continued into the second fiscal quarter (ended July 30). However, this time, revenue and guidance came in below analyst expectations. The market ignored the positives in the quarter, including a 5.5 percentage-point increase year over year in gross margin to 46.2%, a 1.6 percentage-point increase in operating margin, and an 11% increase in earnings per share (EPS) of $1.74. Management lowered full-year revenue guidance but raised operating margin guidance to 18.2% at the midpoint.
Williams-Sonoma is operating in a tough environment. The housing market is still down in the dumps, and in general, shoppers are still holding off on non-essential and expensive purchases. In other words, that’s exactly what Williams-Sonoma sells. It targets an affluent, resilient customer, but even wealthier consumers are feeling inflation fatigue so late in the game, and Williams-Sonoma draws some of its business from the upper levels of the mass market. If the Federal Reserve does indeed lower interest rates later this month, Williams-Sonoma should easily bounce back.
The stock should bounce back as well, but right now, you can get it on sale. It trades at a price-to-earnings ratio of only 16, as compared with Nvidia’s 50, and it even pays a dividend while you wait for the stock to climb higher.
Should you invest $1,000 in Super Micro Computer right now?
Before you buy stock in Super Micro Computer, consider this:
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Jennifer Saibil has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Williams-Sonoma. The Motley Fool has a disclosure policy.
Forget Nvidia: These 2 Stock-Split Stocks Could Be Better Buys was originally published by The Motley Fool
