Wal-Mart (NYSE: WMT) is suddenly a market darling. Shares of the retail giant have surged more than 31% this year, and have been flying higher since October when the company said it would return to profit growth next year and announced plans for a $20 billion share buyback program.
That recent performance may have some investors thinking about a stock split from the venerable retailer. In fact, Wal-Mart has never let its stock get into the triple digits, splitting it every time before it reaches that threshold. With the share price now above $90, there's a good chance the stock could split if management is confident that shares will keep going up.
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Wal-Mart has enacted 2-for-1 splits 11 times since it went it public in 1970 at $16.50 per share. The chart below shows the split dates and the price of the stock on the day of the split.
As you can see, Wal-Mart's stock splits were once fairly frequent, occurring in each of the company's first two years as a public company, and then five times in the 1980's. However, it's now been 18 years since the retailer's last stock split. Wal-Mart's share growth slowed dramatically after the dot-com era as the stock basically traded sideways through the aughts before climbing after the recession. Still, it's put up unbelievable returns over its history. If you had purchased 100 shares of Wal-Mart at its IPO, you would now have 204,800 shares, and that $1,650 investment would be worth more than $18 million, not including dividends.
After its recent surge and the acquisition of Jet.com, Wal-Mart is on stronger footing than its been in years. The company has posted 12 straight quarters of comparable sales growth and e-commerce sales jumped 63% in its most recent quarter, showing the company is successfully tackling its most important challenge as it fends of Amazon.com.
It's important for investors to be aware that a stock split does not add any value, it merely gives investors more shares at a lower price. Still, there's often a psychological benefit in splitting the stock as it's a sign that management sees more upside to it in the future. Splitting the stock also makes it more liquid, which can encourage retail investors to buy it.
What's next for Wal-Mart
At last month's investor meeting, Wal-Mart said it would continue to invest in online channels by opening another 1,000 grocery pickup locations, on top of the 1,000 it already has. Management also projected that U.S. e-commerce sales would increase 40% next year, and said it would scale back on new store openings by adding fewer than 15 Supercenters and 10 Neighborhood Markets domestically.
Management has not discussed the possibility of a stock split, but if shares continue to climb, the probability of it will increase. The company is set to report earnings Thursday, Nov. 16. Analysts are expecting a revenue of increase of 2.4% $121 billion, and earnings per share of $0.97, down a penny from a year ago.
If Wal-Mart posts another strong quarter, expect calls for a stock split to heat up.
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