Stock splits have no impact on revenue or earnings, nor do they affect the valuation or market capitalization of a business. But splits can still create some perceived value for investors by making a company's share price appear more affordable. Not everyone has the money to buy a full share of higher-priced stocks like Tesla (TSLA 1.85%) or Shopify (SHOP 4.90%) right now.
But both companies plan to split their stocks in the near term (Shopify plans it on June 7 and Tesla has only said it will be later this year), and it could lead to some short-term price appreciation.
Of course, short-term tailwinds often make for a poor investment thesis, but Tesla and Shopify are both high-quality businesses with plenty of long-term potential. And with so many growth stocks trading deep in bear market territory -- Tesla is down 45% and Shopify is down 78% from 52-week highs -- a buying opportunity has been created.
Here's what you should know.
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1. Tesla
Global electric vehicle (EV) sales more than doubled to 6.6 million in 2021, accounting for roughly 9% of all cars sold. And despite an increasingly competitive landscape, Tesla notched its fourth consecutive year as the industry leader, capturing 14.4% market share of EV car sales. That figure ticked up to 15.5% in the first three months of 2022.
Despite supply chain issues and rising costs, Tesla managed to deliver 310,000 cars in the first quarter, up 68% from the prior year. In turn, revenue climbed 73% to $62.2 billion over the past year. Better yet, the company posted an industry-leading operating margin of 15.5%, and free cash flow skyrocketed 188% to $6.9 billion. In time, Tesla should become even more efficient as production scales at its new factories in Berlin and Texas.
Despite a sharp stock sell-off, valuation still poses the greatest risk to Tesla investors. Shares trade at 12.1 times sales, a significantly higher multiple than most other automakers. But when you pop the hood, Tesla bears little resemblance to legacy automakers. It was built from the ground up for EV production, meaning it doesn't have to invest billions of dollars to retool outmoded factories. Moreover, Tesla has earned a reputation for expertise in semiconductors, artificial intelligence, and robotics, and the company has positioned itself as a frontrunner in the race to build a self-driving car.
In fact, CEO Elon Musk believes Tesla will have a functional version of its full self-driving (FSD) software this year, and the company already has a dedicated robotaxi in the works. The vehicle will be optimized for autonomy and low-cost transportation, and it's slated for volume production by 2024. That paves the way for Tesla to launch an autonomous ride-hailing service, entering a market that could generate $2 trillion in annual profits, according to Ark Invest.
Perhaps more intriguing, Morgan Stanley analyst Adam Jonas believes Tesla will eventually enter the electric vertical takeoff and landing (eVTOL) aircraft industry, which could reach $9 trillion by 2050. Collectively, that puts Tesla in front of tremendous market opportunity, and it's why investors with a long time horizon should consider buying this growth stock whiles it's on sale.
2. Shopify
Shopify empowers merchants to run a direct-to-consumer business across physical and digital channels. Its software makes it possible to manage sales and inventory across physical stores, branded websites, online marketplaces, and mobile apps, all from a single platform. Shopify also provides supplemental services for payment processing, shipping, and marketing, as well as thousands of integrations through the Shopify App Store.
That comprehensive approach to commerce has helped Shopify win 2.1 million businesses. Better yet, Shopify ranks as the most popular e-commerce software vendor in terms of user satisfaction and market presence, and the company captured a 10.3% market share in U.S. e-commerce sales last year, up from 8.6% in the prior year.
In the first quarter, headwinds like rising costs and unrealized losses on equity investments caused revenue growth to slow, but Shopify continued to gain market share in both physical and digital commerce. Moreover, Shopify has still delivered solid financial results over the past year. Revenue grew 40% to $4.8 billion, and it generated $254 million in free cash flow.
Going forward, shareholders have plenty to be excited about. The company's capacity for innovation has kept it on the forefront of the commerce industry, and its ambition to democratize fulfillment for merchants looks like a game-changer. On that note, Shopify plans to acquire delivery as a service provider Deliverr for $2.1 billion. That deal will accelerate the build-out of the Shopify Fulfillment Network, ultimately allowing Shopify merchants to offer one- or two-day delivery across the U.S.
Currently, the stock trades at 9.6 times sales -- near its cheapest valuation in the past five years -- so now is a great time to buy this growth stock.
