Key Takeaways
- A Costco stock split could increase liquidity, lower barriers for more retail shareholders, and indicate confidence in its future through its management
- Previous Costco stock splits occurred in 1993 and 2000, seeing a slight increase in stock price MoM but dropped over the following 12 months
- Costco's CFO has announced the company may not offer a stock split in 2025, citing there's no incentive for the company to do so
Introduction
Now we are sailing through 2025. Is there a potential Costco stock split on the horizon? If so, when will it happen and how can you take advantage of it? Suffice it to say, you may be waiting longer than you thought, as a 2025 Costco stock split seems unlikely.
Regardless, let's dive into potential triggers and how you can prepare yourself for when the company does split its stock.
What is a stock split?
A stock split is simply a practice that public companies may offer to reduce the cost of their shares. This is done by the company issuing more shares. For example, if a stock was valued at $100/share and the company did a 5:1 stock split, then the shareholder would hold 5 shares at $20/share after the stock split.
Recently Nvidia (NVDA) engaged in a 10:1 stock split as its shares soared to over $1,200/share. After the stock split, shareholders then held Nvidia stock at $120/share (depending on whether you owned 1x share(s) prior to the split).
Benefits of a stock split
- Increased liquidity: After a company splits its stock, there will be more shares in circulation, meaning the company's stock is more liquid due to higher trading volumes.
- Reduced barriers to owning a share: A company's stock price will be significantly cheaper than before the split, allowing investors to own shares at more affordable prices.
- Management confidence: A company usually splits its stock when there is strong confidence from the management that the company will produce future growth.
Will Costco split its stock in 2025?
Costco (COST) has seen exponential strong growth throughout the last 20 years. Over the last 12 months alone, Costco's stock has increased by over 40%, bringing its value per share to over $1,000 and a market cap of over $450 billion.
Costco's stock price
Based on Costco's stock price today, investors may be thinking whether it is time Costco splits its stock to reduce the price for more retail investors to get involved. However, Costco's CFO recently said they had no intentions to do so.
This is due to the accessibility to stocks that brokers now offer, through the option to purchase shares fractionally without owning an entire share. Meaning, that retail investors are not missing out on Costco share ownership and by this logic, Costco has no incentive to split its stock.
Historical stock splits
The last time Costco split its stock was in January of 2000, more than 25 years ago, offering a 2:1 stock split. During the company's stock split in 2000, the stock jumped by 7.27% from the previous month but an overall decrease of 5.5% in January 2001.
Who owns Costco shares?
Currently, more than 67.76% of Costco shares are owned by institutional investors, whereas other shares are held by unknown investors. This large portion of institutional shareholders holding Costco stock are likely unincentivized to push for a company stock split, due to their ability to purchase shares at their current value.
How to take advantage of a Costco stock split?
Usually, when a company announces a stock split, there is an immediate positive market reaction toward the stock. For example, in July of 2024, when Broadcom (AVGO) announced its 10:1 stock split, its stock saw a 38.5% surge leading up to its split.
These types of events are often good opportunities to take advantage of market sentiment. When Costco eventually announces a stock split, it could be a good time to add its shares to your portfolio and ride any potential short-term gains.
Frequently Asked Questions
Which stocks will split in 2025?
Companies such as Oatly Group AB, VanEck Bitcoin ETF, BriaCell Therapeutics Corp, Enveric Biosciences, Inc, and numerous others will split their stocks in 2025. These events can be good opportunities for investors to take advantage of for short-term stock gains.
Is Costco stock a buy or sell?
Currently, 16 market analysts have issued 'buy' signals with 8 analysts suggesting investors to 'hold'. Analyst ratings are floating between a price target of $800 - $1,100 USD.
Is Costco overvalued?
The company's profit-to-earnings (P/E), price-to-sales (P/S), and EBITDA all indicate the Costco is currently overvalued. This may raise concerns among investors as to whether it is a good time to buy, or wait and see.
Conclusion
As we have analysed, based on Costco's current market price, shareholders, and historical information, a Costco stock split seems rather unlikely. However, as the company is beginning to reach new milestones, surpassing $1,000/share, a 2025 Costco stock split is not entirely unthinkable. Let's wait and take advantage when the opportunity arises.
