Investors love a good stock split. There’s something about seeing a lower number for a top company’s stock that can make it feel like a bargain. While the lower price is somewhat of an illusion, since it’s an equally smaller piece of the pie, stock splits do typically indicate a great stock. When a price gets so high that it can make the stock look inaccessible, there’s usually an excellent company behind it, and the market is recognizing that.
Super Micro Computer (NASDAQ: SMCI) and Chipotle Mexican Grill (NYSE: CMG) are two incredible stock-split stocks that have made investors rich over time. Should you still buy them today?
Up 15% since its stock split, can Super Micro Computer still be a winner?
Keith Noonan: Super Micro Computer has become a battleground stock in the artificial intelligence (AI) space. While the company’s sales and earnings have been skyrocketing thanks to AI spurring demand for the company’s high-performance rack servers, some investors are betting that the momentum will be relatively short-lived. Making matters even more complex, the company delayed its 10-K filing shortly after the publication of a bearish report from short-seller Hindenburg Research.
Super Micro Computer completed its 10-for-1 stock split on Oct. 1, and the company’s share price is now up roughly 15% from its pre-split closing price. On the other hand, the share price is still down roughly 60% from the high that it reached in March.
Some bears have raised the argument that Supermicro’s core business revolves around putting off-the-shelf parts together — and that its margins will continue to deteriorate because the core components of its server systems are not proprietary. Graphics processing units (GPUs) from Nvidia and hardware from other companies are central to the value proposition of Supermicro’s rack servers, and the company’s gross margins could face pressure if players in the AI space have other options for securing processing and networking technologies.
In order to differentiate its servers, Supermicro has been looking to its liquid-cooling technologies. The company has recently delivered some good news on that front. In fact, most of Supermicro’s post-split stock gains have been powered by the news that the company has now shipped over 100,000 GPUs fitted with its proprietary liquid-cooling technologies.
Even after the recent gains, Supermicro stock is still valued at just 14 times this year’s expected earnings. On the heels of explosive sales and earnings growth last year, the company’s relatively low forward earnings multiple reflects market sentiment that’s doubtful about the business’s ability to weather cyclical downturns. But the stock could deliver big returns if the AI investment cycle is at an earlier stage than some are predicting.
For risk-tolerant investors looking for AI stock plays with potentially explosive upside, Super Micro Computer could have the makings of a worthwhile portfolio addition.
Chipotle Mexican Grill: Up 6,460%
Jennifer Saibil: Investors love Chipotle stock. The company is the leader in fast-casual dining, and it’s been reliable for growth and profits for years. It sailed through the pandemic with barely an impact, and it’s floating through inflation similarly.
Chipotle’s fresh, healthy fare at an affordable price point is resonating with its target affluent market, and it has raised prices to offset rising costs without curbing demand. Sales increased 18.2% year over year in the 2024 second quarter, driven by an 11.1% in comparable sales, and earnings per share (EPS) rose from $0.25 to $0.33. Operating margin expanded from 17.2% to 19.7%.
Chipotle split its stock in June in a 50-for-1 split, one of the largest ever on the New York Stock Exchange. The stock price had climbed well into the four digits before the split, which is its first, and it had increased since going public in 2006.
Stocks usually pick up steam heading toward a split as investors get excited, and they sometimes lose some of it after the split before picking up again. However, Chipotle has had some other recent news that the market didn’t like very much, and that’s the departure of its superstar CEO, Brian Niccol.
Chipotle wasn’t always a golden stock, and it was experiencing some serious problems before Niccol came on board in 2017. Investors view him as a savior of sorts, redeeming Yum! Brands‘ Taco Bell before achieving the same kind of turnaround at Chipotle. That’s why he’s now been nabbed by Starbucks, which is in desperate need of its own turnaround.
That news followed the announcement that longtime CFO Jack Hartung is retiring, leaving a management void, and it’s not hard to see why the market reacted negatively.
But all is not lost. COO Scott Boatwright moved up to become interim CEO, and Hartung is staying on while the company figures out its next steps. Even if Niccol were largely responsible for creating the branding and processes that have brought Chipotle to where it is today, they aren’t going anywhere.
Management still sees the potential to nearly double the North American store count to 7,000, and it’s also expanding internationally. Chipotle just opened up its first store in Dubai through a recent franchise partnership.
Chipotle has a working formula and plenty of expansion opportunities, and investors can still buy into its growth story.
Should you invest $1,000 in Super Micro Computer right now?
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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 Chipotle Mexican Grill, Nvidia, and Starbucks. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
2 Stock-Split Stocks That Have Increased 5,000% to 6,390%: Should You Buy Them Today? was originally published by The Motley Fool
