We recently published a list of 10 Stocks That May Be Splitting Soon. In this article, we are going to take a look at where O’Reilly Automotive, Inc. (NASDAQ:ORLY) stands against the other stocks that may be splitting soon.
Understanding Stock Splits
A stock split is when a company literally splits its stocks – it divides its existing shares into multiple new shares. This increases the number of shares outstanding without changing the company’s overall value while making the stock more affordable and accessible to smaller investors.
A company’s board of directors determines the ratio of a stock split. This can range from a common 2-for-1 split, and go as far as 100-for-1, or more. For instance, in a 2-for-1 split, each existing share is divided into two new shares. The price per share is reduced by half, but the total market capitalization remains unchanged. So, a stock split can increase liquidity and potentially attract more investors, by giving 2 shares valued at $50, instead of 1 at $100, and the company’s market cap is not impacted.
As the share price adjusts downward, dividends per share will also be adjusted to maintain the same total dividend payout. Similarly, all things tied to the share price are adjusted according to the split. However stock splits are non-dilutive, so existing shareholders’ voting rights remain unchanged.
Stock splits aren’t just beneficial to small investors trying to buy shares in big companies, they can also benefit companies by allowing them to repurchase shares at a lower price. But in one way or another, the eventual goal is to enhance a stock’s appeal to investors and make it more accessible to retail or individual investors.
At the end of the day, a stock split does not inherently create additional value for a company, a good company remains a good company after a stock split. Similarly, a bad company remains a bad company. A temporary reduction in share price followed by higher investor interest might cause the stock to surge in the short run, but no meaningful impact should be expected in the long run.
Experts Weight In on The Market Situation Right Now
We’ve seen a range of high-profile stock splits in 2024, especially in the semiconductor space. They seem to be the new cool thing to do for every company. However, these moves should be treated as no more than just making shares more accessible to smaller investors, and value investors should focus on fundamentals when they’re contemplating their next best idea.
The markets have been on a wild ride, all thanks to AI. The valuations have gotten out of hand, but we’ve also seen some corrections. Analysts are expecting earnings growth of 15% in 2025 along with rate cuts of up to 225 basis points. The Fed is expected to deliver its first cut in September after hiking interest rates constantly and holding them higher for longer. Jeff Krumpelman, the chief investment strategist at Mariner Wealth Advisors, and Julie Biel, the chief market strategist at Kayne Anderson Rudnick, recently appeared together on CNBC to discuss these dynamics and both had similar but contrasting opinions.
Krumpelman expressed optimism, citing strong fundamentals and improving economic indicators, particularly inflation. He believes we’re not in a recessionary scenario and sees potential for the S&P 500 to reach 6,000 by mid-2025, driven by solid earnings growth, healthy guidance, and projected GDP growth of 1.5% to 2.0%. Here’s what he said:
“We look at the individual stocks, we find a broadening market, and we find general health in terms of earnings growth and valuation. So, we’re optimistic and constructive.”
Biel, on the other hand, raised concerns about potential risks related to high valuations making stocks more fragile. She emphasized that the last time the market was this optimistic was back in 1984, just once in modern history. Biel remained cautiously optimistic and pointed to the $1 trillion in credit card debt and rising delinquency rates.
Most successful companies have a history of stock splits, but their share prices consistently return to levels where another split is warranted. Yet it is a widely practiced phenomenon and investors globally anticipate such moves from big companies to improve trust. In this context, we’re going to talk about the top 10 stocks that may be splitting soon.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A mechanic working on a car in an auto shop, skillfully replacing the aftermarket parts.
O’Reilly Automotive Inc. (NASDAQ:ORLY)
Share Price as of August 30: $1,138.47
Number of Hedge Fund Holders: 52
O’Reilly Automotive Inc. (NASDAQ:ORLY) is an automotive parts retailer that provides aftermarket parts, tools, supplies, equipment, and accessories to professional service providers and DIY customers. It’s known for its customer-focused approach and extensive product knowledge and has a team of over 91,000 hard-working professional parts people across North America.
The company has a history of 3 stock splits. Considering a high share price currently that resulted from a 19.54% rise in just 1 year, such an action can be expected from O’Reilly Automotive Inc. (NASDAQ:ORLY) again.
The second quarter began with sluggish sales in April and May due to cool/wet weather, reflected in industry-wide pressure. However, sales trends improved in June, driven by strong performance in hot weather-related categories. June represented the strongest performance for Q2, with similar results in July.
This brought a revenue of $4.27 billion, which was below street expectations but was still up by 4.99% from the previous year. The earnings per share were at $10.55. The company also repurchased 784,000 shares at an average price of $1,012, totaling $794 million.
Despite falling short of sales expectations, customer satisfaction resulted in a 2.3% comparable store sales increase, building upon the 9% growth achieved in the previous year. This is also why investor trust remains strong. As of June 30, 52 hedge funds held stakes in the company. Akre Capital Management had the biggest one at $1,009,676,789.
Performance at O’Reilly Automotive Inc. (NASDAQ:ORLY) is driven by increased ticket counts and excellent customer service. It opened 27 stores in Q2 and remains on track to open a total of 190-200 new stores in 2024.
Still, it lowered its full-year sales guidance due to economic uncertainty but remains confident in long-term demand for automotive aftermarket products. Its focus on customer service and market share gains will drive future growth.
Andvari Associates stated the following regarding O’Reilly Automotive, Inc. (NASDAQ:ORLY) in its Q2 2024 investor letter:
“O’Reilly Automotive, Inc. (NASDAQ:ORLY) is the third largest auto parts retailer in the country with over 6,095 stores in North America and Mexico. Their sales are split 60% to people who want to repair their own car and 40% to professionals who fix and maintain cars for a living. Following the common theme, O’Reilly sells essential products that people will buy regardless of the state of the economy.
We love that this business gushes cash—it had an extraordinary return on invested capital of 43.7% in 2023. O’Reilly has also had negative working capital since 2017, which means customers pay O’Reilly before O’Reilly needs to pay its suppliers. Looking at its capex, O’Reilly does have a higher capex ratio when compared to the others in the table. However, the ratio is still quite low considering O’Reilly is growing its store count in the range of 150-200 per year. At this rate, O’Reilly is expanding its store count by about 3% annually. Also driving the recent increase in capex has been a shift towards owning their stores rather than leasing them.”
Overall ORLY ranks 7th on our list of stocks that may be splitting soon. While we acknowledge the potential of ORLY as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ORLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.