Forget Nvidia: These 2 Split Stocks Could Be Better Buys

Stock splits do nothing to change the fundamentals of a business, but it’s not hard to see why some investors have been paying attention to them lately. By splitting its stock into a larger number of shares, a company lowers its price per share and makes investments more psychologically attractive and more accessible to some investors. Sometimes this can help to achieve substantial valuation gains, but this is not always the case.

Following recent sales, Nvidia The stock is now trading below the closing price on the day of its 10-for-1 split in June. While the artificial intelligence (AI) leader could make a comeback, investors may want to diversify their positions and look for other investment opportunities in the stock split.

With that in mind, read on to see why two Motley Fool contributors think so Super Micro Computer (SMCI -6.79%) and Williams-Sonoma (WSM 1.53%) they are split shares in stock that have attractive upside potential at current prices.

A contrarian bet on Super Micro Computer could pay off big

Keith Noonan: Super Micro Computer’s stock price has been very volatile lately. The server technology specialist has rallied this year on demand for AI processing, but the company’s share price fell in August after gross margins in its latest quarterly report missed expectations. Shortly thereafter, Hindenburg Research published a short report on the company, citing serious problems with its accounting as well as fundamental business weaknesses. The very next day, Supermicro (as it’s known) announced it was delaying the filing of its annual 10-K report.

Supermicro shares are still trading up about 37% year-to-date, but the company’s share price is now down about 67% from its March high. Even with the rating downgrade, the stock is still headed for a 10-for-1 split that will become effective Oct. 1. For risk-tolerant investors, buying Supermicro stock could be worthwhile following the recent selloff.

Supermicro is coming off fantastic growth in fiscal 2024 (ended June 30). Annual sales rose about 110% to $14.94 billion, and non-GAAP (adjusted) earnings per share rose 87% to $22.09 per share. The strong momentum looks set to continue in the near term.

For the first quarter of fiscal 2025, Supermicro is guiding sales to be between $6 billion and $7 billion — good for about 207 percent year-over-year growth in the middle of its guidance range. Adjusted earnings per share, meanwhile, are expected to be between $6.69 per share and $8.27 per share — representing 118% growth at the midpoint.

Supermicro shares are trading at just 11.3 times this year’s expected earnings — a level that looks cheap even with the understanding that the business will be subject to cyclical trends in demand and moderate sales and earnings momentum. Crucially, the company recently reiterated that it does not expect to have any material revisions to the sales and earnings results it reported last year when it filed its delayed 10-K report.

While there is some uncertainty on the horizon, the dramatic pullback in Supermicro’s valuation could provide a useful entry point ahead of the stock split next month.

Short-term factors create a long-term opportunity

Jennifer Saibil: If you’re looking for a good investment business, Williams-Sonoma stock is a great candidate any day. A recent stock split only confirms that the company sees more good times ahead.

Shares of Williams-Sonoma split in July after gaining 136% in a year. However, it disappointed investors with its earnings update soon after, and its shares have been trading down about 10% since the split. Fear not, though. This is a reaction to short-term factors and does not discredit the long-term potential.

Just three months earlier, the company stunned investors with a strong first-quarter earnings report. It reported incredible profitability despite falling sales, and that continued into its fiscal second quarter (ended July 30). However, this time, revenue and guidance were below analysts’ expectations. The market ignored positives in the quarter, including a 5.5 percentage point year-over-year increase in gross margin to 46.2%, a 1.6 percentage point increase in operating margin and an 11% increase in earnings per share (EPS) of $1.74. . Management cut revenue guidance for the full year, but raised operating margin guidance to 18.2% at midpoint.

Williams-Sonoma operates in a challenging environment. The housing market is still down in the pits and buyers are generally still holding back on non-essential and expensive purchases. In other words, that’s exactly what Williams-Sonoma is selling. It targets a wealthy, hardy customer, but even wealthier consumers are experiencing inflation fatigue this late in the game, and Williams-Sonoma is drawing some of its business from the upper levels of the mass market. If the Federal Reserve does indeed cut interest rates later this month, Williams-Sonoma should bounce back easily.

Also, stock should be back, but right now you can get it on sale. It trades at a price-to-earnings ratio of just 16, compared to Nvidia’s 50, and even pays a dividend while you wait for the stock to climb higher.