Better Stock-Split Buy: Nvidia or Chipotle?

Better Stock-Split Buy: Nvidia or Chipotle?

Step aside, Chipotle Mexican Grill (NYSE:CMG). A more anticipated stock split is currently underway. Nvidia (NASDAQ:NVDA) announced last week in its first quarter update that it plans to conduct a 10-for-1 stock split effective June 7, 2024. Chipotle’s board of directors approved a stock split shares to 50 to 1 in March which is expected to take effect in June. 26, 2024.

Nvidia was by far the biggest winner this year. Shares of the GPU maker soared more than 125%, compared with a gain of more than 35% for Chipotle. But which is the better stock split buy right now: Nvidia or Chipotle?

Forget stock splits

First things first: forget stock splits. I know many investors are excited about them and I started this article talking about them, but they make almost no sense.

Of course, Nvidia and Chipotle shares will soon see lower prices. And maybe that will appeal to some individual investors buy. The reality, however, is that anyone who wanted to invest less than the price of Nvidia and Chipotle stock could have already done so. How? Many online brokers offer the possibility of purchasing fractional shares of the best actions.

Another factor to consider is that stock splits are not always good catalysts for a stock’s price. And when they do, the gains are often temporary.

But more importantly, stock splits don’t change anything about a company’s underlying business. Stock splits simply increase the number of shares outstanding and decrease the price of each share. That’s it.

How Nvidia and Chipotle Compare

Still, Nvidia and Chipotle’s upcoming stock splits could spark interest in both stocks. How do they stack up against each other? Let’s start with the financial situation of each company.

Nvidia reported first-quarter revenue of $26 billion, up 262% from the year-ago period. The company reported a profit of nearly $15 billion, up 628% year-over-year. Nvidia’s cash stock exceeded $31.4 billion as of April 28.

Chipotle’s first-quarter revenue jumped 14.1% year over year to $2.7 billion. Its profits rose 13.3% to $359.3 million. The restaurateur had cash and cash equivalents totaling nearly $727.4 million as of March 31.

Moving on to the growth outlook, Wall Street expects Nvidia’s earnings to grow nearly 43% annually on average over the next five years. Analysts expect Chipotle’s profits to grow about 22% annually over the same period.

What about valuation? Nvidia shares are trading at a lofty 41.5 times forward earnings estimates. However, the stock’s price-to-earnings-to-growth (PEG) ratio is a more reasonable 1.35. Meanwhile, Chipotle’s forward earnings multiple of 58.8 and PEG ratio of 2.72 are still higher than Nvidia’s multiples.

I doubt income investors will find either stock attractive. However, Nvidia offers a dividend, while Chipotle does not. Nvidia also recently announced a 150% dividend increase.

A better split stock purchase?

This decision seems easy. Nvidia’s financial results are more impressive than Chipotle’s. The giant chipmaker has stronger growth prospects. Its valuation is more attractive. Nvidia even offers a small dividend. This is the hands down winner, in my opinion.

Just because Nvidia is a better pick than Chipotle doesn’t automatically make it the best stock to buy right now. As great as Nvidia is, I think other stocks could be even bigger winners over the next few years. These stocks may not be subject to stock splits, but that doesn’t matter.

Should you invest $1,000 in Nvidia right now?

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Chipotle Mexican Grill and Nvidia. The Mad Motley has a disclosure policy.

Best Split Stock Buy: Nvidia or Chipotle? was originally published by The Motley Fool

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