Since Wall Street’s major stock indexes found their respective bottoms in October 2022, they’ve been virtually unstoppable. From Nov. 1, 2022 through the closing bell on Feb. 7, 2025, the ageless Dow Jones Industrial Average, broad-based S&P 500, and growth stock-propelled Nasdaq Composite have respectively gained 36%, 56%, and 79%.
There’s no question that artificial intelligence (AI) has played a big role in this outperformance. Any game-changing technology that presents with a $15.7 trillion addressable market by the end of the decade is bound to draw attention.
Among the confluence of factors that have also helped lift stock valuations, such as a decline in the prevailing rate of inflation and Donald Trump’s return to the White House, is investor euphoria surrounding stock splits.
is an event that allows a publicly traded company to adjust its share price and outstanding share count by the same magnitude. Keep in mind that these changes are purely cosmetic and don’t alter a public company’s market cap or affect its underlying operating performance.
Though stock splits come in two varieties, investors prefer one far more than the other. Reverse splits, which are designed to increase a company’s share price, are the least-desirable of the two. This type of split is usually undertaken by struggling businesses that are attempting to avoid delisting from a major stock exchange.
On the other hand, investors often flock to companies completing forward stock splits. This form of split reduces a company’s nominal share price, which comes in handy for retail investors who aren’t able to purchase fractional shares of stock through their broker.
More importantly, businesses that undertake forward splits are typically outperforming and out-innovating their peers. Based on a study by Bank of America Global Research, companies conducting forward splits have handily outperformed the benchmark S&P 500 in the 12 months following their initial split announcement.
In other words, forward stock splits act like a beacon to alert investors to time-tested businesses that, statistically and historically, are poised to outperform.
Last year, more than a dozen prominent companies completed a stock split, only one of which was of the reverse variety. While a few forward splits have taken place since 2025 began, none have been from high-profile businesses.
But there is one exceptionally well-known company — sporting a 62,500% gain since its initial public offering (IPO), not including dividends — which can become the first prominent stock-split stock of 2025.
Image source: Getty Images.
Deciphering which brand-name companies will split their stock next involves more than just locating stocks that have the highest nominal share price.
For instance, some companies with an exceptionally high share price have shown no desire to conduct a split, such as Warren Buffett’s Berkshire Hathaway and homebuilder NVR.
Additionally, forward stock splits are enacted to make it easier for retail investors and/or employees to buy whole shares. If a stock has a high degree of institutional ownership, the impetus for a split may not be as strong. For example, even though the share price for auto parts giant AutoZone has topped $3,420, only 7.5% of its outstanding shares are owned by retail investors. It’s a somewhat similar story for streaming service Netflix, which has 18% retail non-institutional ownership. Without a significant retail following, companies may delay conducting a forward split.
The one brand-name stock that meets the qualifier of having a good amount of non-institutional ownership and an exceptionally high nominal share price is warehouse club Costco Wholesale(NASDAQ: COST). More than 36% of Costco’s shares are owned by retail investors.
Though Costco has conducted three splits since going public in 1985, none have occurred since a 2-for-1 forward split in January 2000. As of the closing bell on Feb. 7, a single share will set investors back almost $1,044!
One of the key reasons Costco has returned 62,500% since its IPO (sans dividends) is its size. This is a company with deep pockets that isn’t afraid to buy items in bulk. Purchasing in bulk typically reduces the per-unit cost per item, which translates into lower prices for its members. Costco’s management team learned a long time ago that the easiest way to attract and retain shoppers is to undercut mom-and-pop shops and national grocery chains on price.
Costco’s success is also a function of its membership model. Since the margins on groceries are razor-thin, the respective $65 and $130 annual fee Costco charges members to shop in its stores boosts its bottom line and provides a hearty margin buffer.
To build on this point, people who pay $65 or $130 annually for a membership are likely to make their largest purchases at Costco. It’s human nature for shoppers to want to get the most out of their annual membership fee.
But perhaps the biggest benefit of a stock split for Costco is that it might help mask the company’s historically expensive valuation. Its stock is trading at 57 times forecast earnings per share for 2025, with sales projected to grow by a modest 7%. For context, this is more than double the consensus price-to-earnings (P/E) ratio of the benchmark S&P 500 in 2025, and it represents a 50% premium to Costco’s average forward P/E multiple over the trailing-five-year period.
Considering that stock-split stocks have historically outperformed in the 12 months following their split announcement, a split may help investors look past Costco’s pricey valuation in an already expensive stock market.
The table is set for Costco Wholesale to become Wall Street’s first prominent stock-split stock of 2025.
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Bank of America is an advertising partner of Motley Fool Money. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, Costco Wholesale, NVR, and Netflix. The Motley Fool has a disclosure policy.
