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 W.W. Grainger Inc. (NYSE:GWW) 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 portrait of an industrial worker wearing safety equipment, smiling while inspecting a piece of equipment.
WW Grainger Inc. (NYSE:GWW)
Share Price as of August 30: $968.04
Number of Hedge Fund Holders: 32
W.W. Grainger Inc. (NYSE:GWW) is an industrial supply company that deals with maintenance, repair, and operating (MRO) products, ranging from tools and fasteners to safety equipment and electrical components. The company has a strong online presence and physical branches worldwide, catering to various industries.
Recently, the company released its 2024 Environmental, Social, and Governance (ESG) Report. It reduced its global absolute Scope 1 & Scope 2 emissions by 31% since 2018, achieving its 2030 target of 30% reduction 7 years early. Now the updated 2030 target is a 50% reduction.
W.W. Grainger Inc. (NYSE:GWW) partnered with YouthBuild USA, aligning with its community strategy pillars to advance the emerging workforce and empower youth.
In Q2 of 2024, the company reported a sales increase of 3.1%. The High-Touch Solutions and Endless Assortment segments contributed to this aggregate sale with individual 3.1% and 3.3% rise respectively. The increase in sales resulted in 3.11% year-over-year revenue growth, with $4.31 billion in revenue, and $9.76 in earnings per share.
Due to temporary market dislocation, it might not meet the 2024 market share target. Yet, by June 30, 32 hedge funds were long in the company, with the highest stake at $74,434,800 by Citadel Investment Group.
In 1 year, the company saw a 33.47% increase in its stock price. While this might not say a lot about whether a company plans a stock split or not, given W.W. Grainger Inc.’s (NYSE:GWW) history of 3 stock splits in the late 1900s, the option does not seem unlikely.
The company adjusted its margin outlook for the remainder of 2024. It’s now focused on managing expenses and returns while growing SG&A slower than sales over time. The daily organic constant currency sales are expected to grow 4-6%. Such plans make it plausible for the company to go for a stock split.
ClearBridge Multi Cap Growth Strategy stated the following regarding W.W. Grainger, Inc. (NYSE:GWW) in its first quarter 2024 investor letter:
“W.W. Grainger, Inc. (NYSE:GWW), in the industrials sector, was our largest new buy. Grainger is the biggest industrial maintenance, repair, and operations distributor in North America. The company is a share gainer in a large and fragmented market, with less than 10% share of the addressable market for their direct, “high touch solutions” business estimated at more than $165 billion. Grainger has also barely scratched the surface with its online “endless assortment” platform, Zoro.com, which targets an even larger market. In addition to its growth and profit potential, we are attracted to Grainger’s strong balance sheet and improved capital allocation under its current management.”
Overall GWW ranks 10th on our list of stocks that may be splitting soon. While we acknowledge the potential of GWW 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 GWW 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.