Investors love stock splits. Although they don't change the fundamental value of a business -- they simply divide its profits among a larger number of shares -- stock splits are regarded as a powerful signal from a company's leadership team that good times are ahead.
This certainly appears to be the case for two of the stock market's best-performing stocks, both of which remain strong buys today.
Stock-split stock to buy No. 1: Chipotle Mexican Grill
Proven businesses with long runways for growth can be lucrative investments. Chipotle Mexican Grill (CMG 0.39%) is one such company.
Chipotle sustainably sources fresh, high-quality ingredients and cooks them via classical methods. The restaurant chain's delicious fare is then made to order and served quickly. Yet, its competitors have found this deceptively simple strategy difficult to duplicate. It's an art as much as a science -- one that Chipotle has nearly perfected over more than three decades.
Many restaurant companies are also struggling with labor shortages. Chipotle, however, is overcoming this challenge by building a reputation as a top employer that treats its employees well. The fast-casual leader offers a career path that pays up to $100,000 in total annual compensation in as little as three years' time.
This pipeline of motivated employees is allowing the burrito baron to launch new stores at a rapid pace. Chipotle plans to open as many as 315 restaurants in 2024. Peering further into the future, management sees room for 7,000 locations in North America, up from about 3,500 stores today. This store growth target doesn't include promising international markets like Europe and the Middle East, which also have vast potential for expansion.
Moreover, Chipotle's profit margins are expanding at its existing locations. Its same-store sales rose by 7% in the first quarter, driven by traffic and menu price increases. That helped the company's restaurant-level operating margin improve by nearly 2 percentage points to 27.5%.
With its business firing on all cylinders and its future bright, Chipotle decided to reward its shareowners with a 50-for-1 stock split on June 25. Management noted that the split is one of the biggest in the storied history of the New York Stock Exchange.
Stock-split stock to buy No. 2: Nvidia
If you're looking for a company with an even larger growth opportunity, consider Nvidia (NVDA -0.36%). The dominant supplier of artificial intelligence (AI) hardware pegs its long-term addressable market at a shocking $1 trillion.
Nvidia provides semiconductor chips that are vital to a host of fast-growing end markets, such as data centers, industrial automation, and autonomous vehicles. Demand for its technology, in turn, is soaring. The chipmaker's revenue rose by 262% year over year to $26 billion in the quarter ended April 28. Its net profits climbed by an even more astonishing 628%, to $15 billion.
Not one to rest on its laurels, Nvidia is accelerating its pace of innovation. Management now intends to launch a new line of cutting-edge chips every year, rather than its previous two-year cadence. CEO Jensen Huang believes this will help to keep competitors like Advanced Micro Devices and Intel at bay.
Nvidia's CUDA software is another powerful competitive advantage. The company's platform is installed on hundreds of millions of computers around the world. Perhaps more importantly, over 5 million developers are trained to use the software to speed up thousands of computing applications. The time and money spent to acquire these skills would make it costly for developers -- and the businesses that employ them -- to switch to another platform.
With its competitive position secured, Nvidia chose to reward its shareholders with a 10-for-1 stock split on June 7. And with a long runway for expansion still ahead, the tech titan's shares remain a solid buy today.
