This Potential Stock-Split Stock Could Make You Rich
Key Points
Some prognosticators are speculating that Costco may split its stock in 2026.
Investors shouldn't get too excited about stock splits, though.
It's more important to weigh Costco's valuation before jumping in.
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What's the next stock split that could make you rich? It might just be Costco Wholesale (NASDAQ: COST).
Costco has made lots of investors a lot of money, and it still has plenty of growth potential. However, I'd suggest not focusing on any potential or actual stock splits, as they're generally nothing burgers for investors.
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Here's why: Imagine that you own 10 shares of Costco, which recently traded around $960 per share. The total value of your shares is therefore $9,600. Nice. Now let's imagine that Costco announces a 4-for-1 stock split. (It has split its stock three times in its history: 2-for-1 in 1991, 3-for-2 in 1992, and 2-for-1 in 2000.)
Image source: Getty Images.
So on the day of the split, your 10 shares would become 40 shares (yay!), but their share price would simultaneously be reduced proportionately (boo!). If the price had been $960 per share, it would now be $240. Let's see what your position in Costco would now be worth: Multiply your 40 shares by $240 per share, and you'll end up with ... $9,600. See? Nothing burger.
Regardless of whether it actually splits in 2026, you might still consider investing in Costco. It's been a great performer, averaging annual gains of about 21% over the past decade. It has achieved that in part by serving its three main constituents very well: It rewards employees with above-average wages and benefits; it rewards customers by marking up most of its offerings by no more than around 14%; and it rewards shareholders with solid gains over the long haul.
There's just one problem. Costco's stock is rather richly valued, with a recent forward-looking price-to-earnings (P/E) ratio of 47, which is a good bit above its five-year average of 41. So cautious investors might want to wait for a pullback. If you can't wait, perhaps buy into the stock incrementally. And it goes without saying that if you already own shares of Costco, consider hanging on -- for the long haul. I certainly plan to.
Should you buy stock in Costco Wholesale right now?
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Selena Maranjian has positions in Costco Wholesale. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.
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