1 Stock-Split Stock to Buy Hand Over Fist in October and 1 to Avoid

Companies will split their stocks for many reasons, including making it easier to give employees stock options or to give individual investors an opportunity to buy shares without breaking the bank. It is never done to make its business more valuable though. Contrary to popular belief, stock splits are meaningless for assessing the underlying business fundamentals of a stock you are buying. It simply means there are more slices of the same pizza.

Alas, companies that split their shares remain highly popular with investors. With that in mind, here is one stock to buy in October and one to avoid -- not because they split their stocks, but because of their valuations and business prospects.

A sneaky winner in the brokerage market

Interactive Brokers (NASDAQ: IBKR) split its stock back in June of this year. The company is a stock brokerage focused on serving both individuals and advanced professional clients. With a long history, Interactive Brokers has built up a vast inventory of assets its customers can invest in, which gives it a leg up on the competition. This is why its customer accounts hit 4.1 million last quarter, growing 32% year over year.

With a focus on technology, automation, and frugality, Interactive Brokers has some of the best profit margins in the world. Last quarter, its pretax profit margin was 79%, meaning that for every $100 in revenue it earns, $79 falls to the bottom line (before deducting taxes). The company is not resting on its laurels, either. Stock investing has hundreds of millions of customers around the world that the company can convince to come over to its low-cost platform with wide asset availability. It is one of the only brokerages in the U.S. where you can directly invest in international markets, making it better for more professional and advanced traders.

During the past 10 years, Interactive Brokers revenue has grown by a cumulative 600%. Earnings per share (EPS) were up close to 1,000%. With the stock trading at a forward price-to-earnings ratio (P/E) of just above 30, now looks like a good time to buy this high-growth stock and hold for the long haul.

Image source: Getty Images.

Crowded BNPL field

Do you remember buy-now-pay-later (BNPL) stocks? These innovative payment and lending businesses were trendy during the COVID-19 pandemic, as investors thought they were going to disrupt traditional credit cards. Disrupting credit cards has not happened yet, but BNPL has still seen steady growth as an industry.

One soaring stock in the sector is Sezzle (NASDAQ: SEZL). Its shares are up 457% since going public in 2023. The company has shown some strong growth since then, with revenue up a cumulative 224% and growing 76% year over year last quarter.

In most cases, fast revenue growth is a fantastic indicator of business health. However, with a lending business like Sezzle, fast growth can create uncertainty. Today, Sezzle has $185 million in notes receivable (consumer loans) on its balance sheet from BNPL lending. A fast-growing lending business may be caught flat-footed if it had bad underwriting on these loans or if the economy goes into a recession. This presents major risks for any Sezzle shareholder buying the stock today.

Plus, BNPL is a hypercompetitive market with no competitive advantages. There are larger lenders like Affirm and other financial technology companies such as PayPal attaching BNPL services to their own product ecosystems.

Today, Sezzle trades at a cheap-looking P/E ratio of 15. This may make you think it is a great stock-split stock to add to your portfolio, especially with how fast the business is growing. But investors need to remember this is an unproven lending operation operating in a hypercompetitive field, which gives Sezzle a lot of downside risk for anyone buying today.

Avoid Sezzle and buy Interactive Brokers if you are hunting for stock-split stocks to add to your portfolio.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Interactive Brokers Group, PayPal, and Sezzle. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal, long January 2027 $43.75 calls on Interactive Brokers Group, short December 2025 $75 calls on PayPal, and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.