When Will Wal-Mart Stores, Inc. Split Its Stock Again?
Wal-Mart (NYSE: WMT) shares rallied about 16% this year on the strength of its turnaround efforts, easily outperforming the Dow Jones U.S. Retail Index's 3% gain. But now that the stock is hovering in the $70s, investors might be wondering if the retail giant will split its stock soon. Let's look back at Wal-Mart's stock split history to see if that could happen in the coming year.
Image source: Wal-Mart.
Wal-Mart's stock split history
Wal-Mart went public in 1970 at $16.50 per share, and has split 11 times since then. If you had bought 100 shares of Wal-Mart for $1,650 back then, you would own 204,800 shares today -- which would be worth about $14.7 million.
Source: Wal-Mart.
If Wal-Mart had never split its stock, it would be trading at over $147,000 per share -- making it too hard for mainstream investors to purchase a single share.
Wal-Mart has only split its stock above the $70 level twice -- once in 1983 and again in 1999. This means that if Wal-Mart continues rallying, the stock might undergo another two-for-one split.
But stock splits don't matter that much
Stock splits make a stock look "cheaper," but its valuation doesn't change -- it simply cuts individual shares into smaller pieces which are presumably easier to buy in even lots. That might generate more trading volume from short-term traders, but it doesn't have a meaningful impact on its long-term growth.
Warren Buffett hated stock splits because he believed that they attracted short-term investors instead of long-term ones. That's whyBerkshire Hathawayhas never split its Class A shares, which cost over $248,000.
Wal-Mart's e-commerce rival Amazon trades at about $760 per share, but the stock hasn't been split since 1999. Yet Amazon's 1,800% return over the past decade has crushed Wal-Mart's 50% gain -- indicating that splits have very little to do with long-term price appreciation.
What Wal-Mart investors should be watching
Instead of focusing on stock splits, Wal-Mart investors should follow more meaningful developments, like the billions of dollars it's invested in wage hikes, better employee training, and e-commerce expansion. Reports indicate that those efforts are paying off -- analysts have praised its cleaner and more organized stores, employees are more satisfied with their career growth options, and customers are finally returning.
Wal-Mart is also countering Amazon with price-matching strategies, membership plans for free shipping, curbside pickup, and the expansion of its digital ecosystem with upgraded apps and its acquisition of e-commerce start-up Jet.com. It's also challengingthe growth of big dollar store chains like Dollar Tree (NASDAQ: DLTR) with more Neighborhood Markets.
Despite all that progress, Wal-Mart's growth remains sluggish. Analysts expect its sales to rise less than 1% this year, and for its earnings to fall 6% due to higher expenses. However, Wal-Mart trades at just 15 times earnings, which is lower than its industry average of 22, and its forward dividend yield of 2.8% is higher than the S&P 500's current yield of 2.1%. Investors should focus on these facts and figures -- not stock splits -- to gauge Wal-Mart's strength as a long-term investment.
The key takeaway
Investors should know that a low stock price doesn't make a stock "cheap." That can only be determined through key numbers like price-earnings and price-sales ratios. Therefore, if you didn't like Wal-Mart at $70, then don't buy it if a split reduces its price to $35. Likewise, if you think Wal-Mart is a great buy but only have enough to buy 50 shares, don't wait for it to split just so you can buy an even lot of 100 shares.
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