2 stock splits not named Nvidia that are priced for perfection

While the hype surrounding the rise of artificial intelligence (AI) has been a key factor driving Wall Street’s major stock indexes to record highs, it’s important not to overlook the role that stock split euphoria has played in boosting the valuations of some of the the most important in Wall Street. – influential businesses this year.

A stock split is a tool that publicly traded companies have at their disposal that can allow them to change their stock price and the number of shares outstanding by the same factor. Note that stock splits are purely superficial, meaning they do not change a company’s market capitalization or influence operational performance in any way.

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Among the two types of stock splits—forward and reverse—investors clearly prefer forward splits. Reverse stock splits, which increase a company’s stock price, are typically completed from a position of operational weakness and are often designed to ensure continued listing on a major exchange.

Meanwhile, forward-stock splits are implemented by high-flying stocks, which almost always have a rich history of outperforming and out-innovating the competition. Of the 13 phenomenal businesses that have announced or completed a stock split in 2024, 12 are forward-splits.

While most attention has been paid to AI darlings on Wall Street, Nvidia, Broadcomand Super Micro Computerthat have announced or completed respective 10-for-1 forward splits, several other high-profile stock splits have quietly moved into nosebleed valuation territory.

While valuation is a subjective term, the next two stock splits not named Nvidia appear to be perfectly priced.

Chipotle Mexican Grill

The first high-speed stock split that must have fundamentally focused investors scratching their heads in disbelief is none other than a fast-casual restaurant chain Chipotle Mexican Grill (CMG -0.15%). Chipotle completed a historic 50-for-1 split in June (the company’s first split), which was necessitated by a gain of more than 12,200% since its initial public offering (IPO) price in January 2006.

There’s no denying that Chipotle has brought clearly defined competitive advantages to the table, consistently outperforming its peers.

For starters, Chipotle has promised its customers to use responsibly raised meat, free of unnecessary antibiotics, and to source its vegetables locally when possible. Chipotle’s core customer has demonstrated a willingness to pay a premium price for food they perceive to be of higher quality. Thus, Chipotle had no problem staying ahead of the inflation curve.

The company’s limited menu can also be considered a competitive advantage. A smaller menu is what allows Chipotle to prepare its meals fresh daily, as well as speed up the ordering process. A limited menu also helps give new items more interest when they are introduced.

Innovation was also key. Starting in 2018, Chipotle Mexican Grill introduced its “Chipotlanes” concept, which is a drive-through lane dedicated to mobile ordering. This concept was critical to its success during the COVID-19 pandemic.

But despite all these positives, Chipotle is currently valued at 42 times consensus earnings per share (EPS) for 2025. There’s only so much innovation that can be squeezed out of a fast-casual restaurant chain, which makes its forward price-to-earnings (P/E) ratio of 42, which is almost double the benchmark S&P 500all the more blatant.

Additionally, Chipotle’s organic growth rate, without new store openings, fails to support a forward P/E of 42. Even with a strong digital sales margin, Chipotle posted comparable restaurant sales growth of “only” 7% in March- ended quarter and 11.1% in the last quarter. With some of these gains coming from simple price increases, it exposes how much this stock is priced to perfect.

It could take years of double-digit earnings growth before Chipotle current the assessment makes sense.

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MicroStrategy

The other split stock that seems to be rated for perfection and worth avoiding in my view is an AI enterprise analytics software company MicroStrategy (MSTR 3.86%). In August, MicroStrategy completed a 10-for-1 pre-split.

Although technically a software company, very little of MicroStrategy’s $24.3 billion market cap comes from its enterprise analytics software segment. Rather, most of MicroStrategy’s valuation can be traced back to it Bitcoin (BTC -0.89%) holdings. As of July 31, he held 226,500 bitcoins, which is more than 1% of the 21 million tokens that will ever be mined.

The most glaring flaw in MicroStrategy’s valuation is the inexplicable premium investors placed on its Bitcoin portfolio relative to the current price of the world’s largest cryptocurrency by market value. With Bitcoin at $56,735 per token, at the time of writing, MicroStrategy’s crypto assets are worth $12.85 billion. The vague allocation of a $1 billion valuation for its software operations puts the premium investors paid for MicroStrategy’s Bitcoin assets at 89 percent, or around $107,000 per Bitcoin.

In addition to overpaying for MicroStrategy’s digital assets, investors seem to be ignoring how risky the company’s strategy was to fund its Bitcoin purchases.

CEO Michael Saylor oversaw a series of convertible debt offerings to raise capital so his company could buy Bitcoin. The problem with this approach is that the world’s largest cryptocurrency has endured some very steep bear markets since its inception. In addition, there is a possibility that MicroStrategy’s software segment may not be able to generate sufficient operating cash flow to service its debt.

The latest blip for MicroStrategy is the aforementioned software segment, which saw sales decline 14% over the past decade (ended December 31, 2023).

While I’m admittedly not a fan of Bitcoin as I consider it to be a first-generation network that has been overtaken by third-generation blockchain platforms, there are plenty of ways to invest in it if you’re optimistic. Buying MicroStrategy stock might be the worst possible way to show your support.