In the beverage business, bottlers like Coca-Cola Consolidated are trapped by inflation in a low-margin business.
Most investors understand there's no actual mathematical benefit to a stock split. In the same sense that holding two $10 bills is the equivalent to holding one $20 bill, doubling the number of a company's outstanding shares simply cuts the value of those shares in half -- no net value is created in the process, no matter how many new shares are issued.
As most veteran investors can attest, however, there's still a beneficial bullish buzz surrounding most stocks before, during, and after a split. Indeed, even if it's only a temporary boost, researchers with Bank of America note that stocks gain an average of about twice that of the broad market over the course of the 12 months following a split. Clearly, investors like the unspoken implications of such a move!
Be careful of jumping to sweeping conclusions about these average results, though. Like any other mathematical-mean figure, it can be made up of a wide range of inputs, some of which are at the extreme opposite end of the spectrum as the average number itself.
In other words, a stock split alone doesn't guarantee a bullish performance. The underlying company must still be worth owning. If it isn't, its ticker is still a bad bet.
With that as the backdrop, here's a closer look at two different companies, one of which will soon be undergoing a confirmed stock split, and the other which may soon make such an announcement. One's worth buying, while the other one is arguably best left avoided.
Streaming giant Netflix (NASDAQ: NFLX) hasn't made any official indication that a stock split is in the works, for the record. But there are a couple of good reasons to expect one soon.
The first of these reasons is the fact that the last time the company's stock neared the price of $1,000 -- where it is now -- management felt compelled to initiate a 7-for-1 split. Such a frothy price point makes it a logistically complicated name for some institutions to buy and hold, as well as makes it downright unapproachable for the typical individual investor to step into. Since no company wants to stymie interest in its own stock, Netflix is likely to address this potential problem before it becomes one.
And the second reason a stock split could be in the works? CEO Reed Hastings recently suggested he's aiming for a trillion-dollar market cap as soon as 2030. That would mean a doubling of the company's current market value, or doubling the stock's already-frothy price to nearly $2,400 per share, thus making its current approachability problem even bigger.