Sometimes when investors see a share price of $1,000, $2,000 or more, they skip right past it. But there’s no need for such ‘stock sticker shock’ — for two reasons.
One, with the advent of fractional share investing, investors can purchase less than one share of a company and still enjoy the benefits of equity ownership. A less risky alternative to devoting an entire account to a single share, a fractional share purchase allows a portfolio to be diversified into other names. Nowadays, Charles Schwab, Robinhood, SoFi and several other brokerages allow fractional share buys and sells.
Second, valuation matters more than share price. Valuation metrics such as the price-to-earnings (P/E) ratio are the real determinant of company worth. A $1,000 stock could very well be a better bargain than a stock priced at $100 or even $10 per share.
But why would a company choose to let their share price climb above $1,000 without enacting a split? It’s all about image. Some feel a high price tag is a status symbol that implies superior value. In reality, a $1,000 stock and a $10 stock could have identical market values.
Most companies, however, opt for a split that lowers the share price but increases the share count. As far as market capitalization goes, it's a wash. Splits are done to make a stock more appealing to investors (or at least give off the perception of affordability).
So with few companies letting their shares run, sky-high prices are uncommon. Only 26 stocks currently command a share price above $1,000 — half of which trade on the over-the-counter (OTC) exchange. Among the rest, these three are ‘high-priced deals.’
Is AutoZone Stock Undervalued?
Currently trading around $2,300 per share, AutoZone, Inc. (NYSE: AZO) has yet to perform a split in its 32-year history. Auto parts retail peers, including rival O’Reilly Automotive, have. This can make it feel like AutoZone is too expensive, but that’s far from the case.
Based on the company’s trailing 12 months' earnings, AutoZone’s P/E ratio is 18x. O'Reilly Automotive, whose market cap is $11 billion above AutoZone’s, has a 26x trailing P/E. There is also a sizable gap between the competitors’ PEG ratios (AutoZone is at 1.8x, O’Reilly at 2.3x). Compared to the average P/E of the broader consumer discretionary sector (30x), AutoZone is again significantly cheaper.
Another pillar of value, AutoZone has an active buyback program which reduces its outstanding shares and effectively gives shareholders a greater slice of the profit pie. Last quarter, the company bought $908 million of its stock at an average price of $2,551. Down 9% from that level, AutoZone is a roaring value engine.
What Nasdaq Company Has the Highest Share Price?
At approximately $2,700 per share, Booking Holdings Inc (NASDAQ: BKNG) owns the Nasdaq’s highest price. First Citizens Bank (A shares) and Mercadolibre are a distant second and third. Interestingly, Booking Holdings did split back in 2003. But it came in the form of a reverse 1-for-6 split when the online travel service was a penny stock struggling to maintain Nasdaq listing requirements.
What a difference 20 years makes.
Today, Booking is a leading travel site differentiated by its Name Your Own Price feature, which lets consumers bid for flights, hotels, cruises and car rentals at discount prices. Speaking of discounts, the now financially sturdy company is trading at 20x this year’s earnings estimate. Upstart challenger Airbnb is going for 34x 2023 earnings, while international competitor Trip.com is at 30x.
Booking’s 1.0x PEG ratio is not only half that of Airbnb but also one of the lowest in the leisure industry. Even at this near-record level, investors may want to name their price.
Are Chipotle Shares Too Hot to Touch?
Chipotle Mexican Grill, Inc. (NYSE: CMG) is trading less than 5% off its $2,139.88 all-time high. The popular quick service restaurant (QSR) chain is still inexpensive, even if its burrito bowls are not.
Although Chipotle commands a premium valuation relative to large-cap restaurant peers, it is a premium worth paying for. The company’s growth track record, ability to raise prices without offputting loyal customers and strong balance sheet are big fundamental pluses. And in the current inflationary environment, Chipotle has the potential to grab market share from full-service restaurants that face higher wages and other cost pressures.
Chipotle’s 2023 P/E ratio of 46x may be hard to digest but should be eaten with a side of growth. Its PEG ratio is 2.2x which compares quite favorably to fast-growing peers like Wingstop (6.4x) and even mainstays like McDonald’s (3.7x).
Don’t worry about Chipotle’s $2,000 order price. It comes with extra guac.
