Since October 2022, Wall Street’s major stock indexes, including the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite, have been on an impressive upward trajectory, gaining 36%, 56%, and 79%, respectively, through February 7, 2025. This rally has been fueled by a combination of factors, including the decline in inflation, the return of Donald Trump to the White House, and the growing excitement around emerging technologies like artificial intelligence (AI). AI, in particular, has captured the imagination of investors due to its vast potential, with an addressable market expected to reach $15.7 trillion by the end of the decade. However, another key driver of this market optimism has been the resurgence of investor interest in stock splits.
Stock splits are a financial tool that allows companies to adjust their share price and the number of outstanding shares without altering the company’s market capitalization or fundamental performance. While stock splits can be either forward or reverse, forward splits—where the share price is reduced—are far more popular among investors. These splits make it easier for retail investors to purchase whole shares, as they often cannot buy fractional shares through their brokers. Additionally, companies that undertake forward splits are typically high-performing businesses that are outpacing their peers. Historically, companies that announce forward splits have outperformed the S&P 500 by a significant margin in the following year, making them attractive to investors. In 2024, over a dozen prominent companies executed forward splits, with only one opting for a reverse split. However, so far in 2025, no major companies have announced forward splits, leaving the door open for a well-known player to take the lead.
One such company that could become the first prominent stock-split stock of 2025 is Costco Wholesale (NASDAQ: COST). Costco has been a standout performer since its IPO, delivering an incredible 62,500% return (excluding dividends). The company’s success can be attributed to its bulk purchasing model, which reduces costs and allows it to offer lower prices to its members. Its membership-based business model has also been a key driver of its success, with annual fees providing a steady stream of revenue and a cushion for its bottom line. Costco’s shares are currently trading at around $1,044, making them inaccessible to many retail investors. A forward split would not only make the stock more affordable but also align with the company’s history of splitting its shares to maintain accessibility for its loyal customer base.
Costco’s high retail ownership, with over 36% of its shares held by non-institutional investors, makes it an ideal candidate for a forward split. Many high-priced stocks, such as Berkshire Hathaway and NVR, have shown no interest in splitting their shares, often because they have lower retail ownership and see little benefit in doing so. On the other hand, companies like AutoZone and Netflix, despite their high share prices, have limited retail ownership, reducing the incentive for a split. Costco, however, stands out as a company with both a high share price and significant retail ownership, making it a prime candidate for a forward split. Additionally, Costco’s management has a history of splitting its shares, having done so three times since its IPO, with the most recent split occurring in 2000. A forward split in 2025 could help mask the company’s high valuation, which is trading at 57 times its projected 2025 earnings, compared to the S&P 500’s average P/E ratio of 27.
The potential for a stock split is particularly timely for Costco, as it could help investors overlook its steep valuation in an already expensive market. Historically, companies that announce forward splits have outperformed the broader market in the following year, and Costco’s proven track record of success makes it an attractive candidate for such a move. With its strong financial performance, loyal customer base, and commitment to accessibility, Costco is well-positioned to capitalize on the investor euphoria surrounding stock splits. If the company decides to move forward with a split, it could not only make its shares more accessible to retail investors but also signal confidence in its continued growth and success.
In conclusion, the stock market has been on a remarkable run since hitting its lows in October 2022, driven by a combination of factors including the rise of AI, declining inflation, and investor enthusiasm for stock splits. While several prominent companies executed forward splits in 2024, no major player has stepped forward in 2025. Costco Wholesale, with its high share price, significant retail ownership, and history of splits, is uniquely positioned to become the first prominent company to announce a forward split in 2025. A split would not only make its shares more accessible to individual investors but also potentially boost its already impressive performance. As the market continues to evolve, companies like Costco that prioritize accessibility and investor confidence are likely to remain at the forefront of investor interest.
