Stock splits break high-priced stocks into smaller, more manageable pieces. These moves don't change a company's fundamental value, but they can make its equity more liquid and accessible for retail investors who might not have access to purchasing fractional shares. Stock splits can also signal that a business has a lot of recent operational momentum.
Let's explore why Super Micro Computer (NASDAQ: SMCI) and Cintas Corporation (NASDAQ: CTAS) are two stock-split stocks that belong on your investment radar in September and beyond.
Super Micro Computer
Super Micro Computer is one of the top beneficiaries of the generative artificial intelligence (AI) boom. With its shares up over 2,200% during the last five years, management decided to enact a 10-for-1 stock split to bring its price tag back to Earth. But while Super Micro boasts fast growth and a rock-bottom valuation, things aren't all peaches and cream.
First, the good news. Super Micro's business is booming. Fourth-quarter revenue soared by 144% year over year to $5.3 billion. Net income jumped 82% to $353 million as data center clients invested in its computer servers and liquid cooling systems to handle an uptick in AI-related demand.
That said, Super Micro's gross margins remain under pressure, falling from 17% to 11.2% year over year as it has failed to pass rising production costs on to consumers. This trend suggests that its products are not well-differentiated from alternatives in the market.
The short-seller research company Hindenburg Research also recently suggested that Super Micro engages in misleading accounting practices -- claims that management strongly denies.
With a forward price-to-earnings (P/E) multiple of just 13, Super Micro's dirt-cheap valuation seems to price in these concerns. But investors may want to take a wait-and-see approach for now.
Cintas Corporation
While Cintas is far from being a flashy AI company, it has generated its fair share of investor returns, with shares up over 200% in the last half-decade. A 4-for-1 stock split will help bring its $805 stock back down and let smaller investors more easily get exposure to its growth and stability.
Cintas is a blue chip company that provides business supplies like uniforms, safety apparel, and restroom dispensers through its nationally recognized sales teams. The company has exposure to a wide range of industries, giving it diversification and a practically limitless addressable market . Q4 earnings demonstrate strong performance.
Image source: Getty Images.
Revenue grew 8.2% year over year to $2.47 billion, while net income surged around 19.6% to $414.3 million. On top of the great operating performance, Cintas sweetens the deal with a dividend yielding 0.78%. While this is smaller than the S&P 500 average yield of 1.32%, investors can expect the return to grow over time with the company's profitability.
If there is anything not to like about Cintas, it's a premium valuation. With a forward P/E of 49, the stock is almost four times pricier than Super Micro despite a drastically lower growth rate.
Which stock is better for you?
While Super Micro Computer and Cintas Corporation are both enacting ambitious stock splits to bring their share prices back down, that is where most of the similarities end. These are two very different companies from a fundamental perspective.
On the surface, Super Micro looks like a much better buy. Its revenue is growing at a high triple-digit rate, and with a forward P/E multiple of just 13, its shares are almost inexplicably cheap.
That said, Super Micro's deteriorating margins and negative media attention create uncertainty about its future, which might be reflected in its low valuation. Investors may want to bet on safer (albeit higher-valued) picks like Cintas for now.
Should you invest $1,000 in Super Micro Computer right now?
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy .
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