These two unstoppable stocks — up 153,000% and 287,000% since IPO — are logical candidates to announce a stock split in September

While artificial intelligence (AI) was the next clear trend that drove Wall Street’s major stock indexes to record highs in 2024, don’t overlook the equally important role that stock split euphoria played in driving stocks higher.

A stock split is a tool that publicly traded companies have at their disposal that allows them to cosmetically adjust their stock price and number of shares outstanding. The “cosmetic” aspect of splits is that adjusting a company’s stock price and number of shares by the same factor has no impact on the underlying market capitalization or operating performance.

There are two options for stock splits, with investors preferring one considerable more than the other. Reverse stock splits are designed to increase a company’s stock price, usually with the goal of securing continued listing on a major stock exchange.

Comparatively, forward-stock splits aim to reduce a company’s stock price to make it more nominally affordable for retail investors who may not have access to fractional stock purchases through their broker. Because this type of split is done by companies in a position of operational strength, investors tend to focus their attention on forward splits.

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In 2024, just over a dozen well-known companies announced or completed a stock split — all but one was a forward-split. Some of the most well-known include Nvidiasplit 10 to 1 in June, Broadcomhis was split 10 for 1 in July, Chipotle Mexican Grillhistoric split of 50 for 1 in June and Walmarthis 3-for-1 split that kicked things off in late February.

In addition to being time-tested market leaders, companies announcing stock splits have, statistically speaking, easily outperformed the benchmark. S&P 500 in the 12 months following the announcement of their separation (since 1980). Thus, investors are always trying to guess which stock(s) could be the next to join this exclusive club.

With most companies choosing to announce a split when they release their quarterly operating results, two unstoppable companies stand out as logical candidates to become Wall Street’s next split stocks in September.

Costco Wholesale

The first sensational business that looks set to announce a stock split next month is a company that has risen nearly 153,000 percent since its initial public offering (IPO) in December 1985, including dividends. I’m talking about the warehouse club Costco Wholesale (COST -2.29%)which is due to provide its fiscal fourth quarter operating results on September 26.

It’s been a hot minute since Costco Wholesale conducted a stock split to make its stock more accessible to ordinary investors. Since its IPO, Costco has completed three forward splits, although the last (2 for 1) occurred in January 2000. With Costco’s stock price now sitting at $900, a split seems long overdue.

Costco’s consistent outperformance can be traced to three catalysts.

The most obvious is that it is a consumer staples stock. Although companies that provide basic goods and services rarely, if ever, attract investors with astounding growth rates, they generate very predictable operating cash flow. Regardless of how well or poorly the US economy is doing, consumers will visit its stores for staples, including food, beverages and various household products.

The size of the company is its second competitive advantage. With deep pockets, Costco can buy goods in bulk, which lowers the unit cost of each item. A lower upfront cost, along with a factor I’ll discuss in a moment, helps Costco undercut big box retailers and traditional mom-and-pop stores—and we all know how important price is to appeal to the average consumer.

The third and perhaps most important catalyst behind Costco’s continued success is its membership-based operating model. Membership revenue is high margin and provides a healthy buffer when undercutting local competitors’ price points.

Moreover, paying for a subscription is likely to encourage consumers to get their money’s worth. This means they will remain loyal to Costco and will more than likely turn to its warehouses when making sizeable purchases.

Image source: Getty Images.

Adobe

The other unstoppable stock that offers a rich history of performance and looks poised to become Wall Street’s next breakout stock is none other than the cloud software colossus. Adobe (ADBE -1.28%). Adobe stock has soared more than 287,000%, including dividends, since its August 1986 IPO.

In the last 38 years, Adobe has completed six stock splits, each of which was of the 2-for-1 type (March 1987, November 1988, August 1993, October 1999, October 2000, and May 2005). However, it hasn’t split its stock in over 19 years, and its stock is approaching $570 a share. With the company’s third-quarter operating results set to be released after the closing bell on September 12, the table is set for Adobe to announce its seventh split since going public.

Similar to Costco, there are three well-defined catalysts that Adobe finds itself on.

For starters, the company’s Creative Cloud apps, which include Photoshop, Illustrator and Premiere Pro, along with its Document Cloud services like Acrobat, are the undisputed favorite choice of content creators. Adobe’s consistent double-digit sales growth in constant currency is evidence that digital media professionals are increasingly monetizing their work and becoming more dependent on Adobe’s high-margin product ecosystem.

Perhaps the most important catalyst for Adobe is that it is primarily a subscription-based operating model. Of the roughly $10.5 billion in revenue generated in the first six months of fiscal 2024 (ended May 31), 95 percent can be traced to subscriptions. The value of subscription-focused models is that they tend to keep customers loyal to the brand and within the company’s umbrella of products and services. It also facilitates cross-selling opportunities.

The last piece of the puzzle for Adobe was its artificial intelligence links. In March 2023, it released Firefly, its tool that allows content creators to harness the power of generative AI to produce realistic images in Photoshop, as well as create images from text in Adobe Express and Adobe Stock. If the euphoria surrounding artificial intelligence continues, Adobe should be the main beneficiary.