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A stock split allows a company to lower its stock price by dividing each share into smaller units without changing its market cap — the value of all its shares combined. This process has no impact on business fundamentals, but it can make the equity more accessible to retail investors who don’t have access to fractional shares.

Let’s explore why two recently split stocks, Celsius Holdings (NASDAQ: CELH) and Shopify (NYSE: SHOP), look poised for sustainable bull runs.

1. Celsius Holdings

On Nov. 15, Celsius Holdings completed a 3-for-1 stock split that took its shares from around $150 to just over $50 at the time of writing. The move caps off an impressive rally of 55% year to date in 2023. And despite a somewhat rich valuation, the beverage maker can continue outperforming because of its rapid growth rate and deep economic moat.

Celsius focuses on functional drinks that help customers with goals like weight loss and energy. It differentiates itself from similar companies like Monster Beverage or Red Bull by avoiding artificial flavors, artificial preservatives, or high-fructose corn syrup. And its differentiation strategy seems to be catching on with consumers.

Revenue soared by a jaw-dropping 104% to $385 million as Celsius’s products continued to fly off shelves in North America. And the company still has plenty of room to grow. Sales are still relatively small compared to Monster, for example, which sold $1.86 billion worth of products in the same period. International expansion is another opportunity because just 3.5% of Celsius’s third-quarter sales came from outside the U.S.

Celsius’s forward price-to-earnings (P/E) multiple of 56 is more than double the S&P 500’s average of 25. But this looks like a fair price to pay, considering its spectacular growth. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose fourfold to $103.6 million.

2. Shopify

Shopify’s stock split occurred in mid-2022 and divided its shares 10-for-1. Unlike Celsius, the e-commerce giant made the move at a time when its business was struggling with post-COVID challenges like inflation and slow growth. But now, the more accessible stock price allows smaller investors to bet on its exciting operational rebound.

Shopify’s third-quarter earnings highlight these positive trends. Revenue rose a solid 25% year over year to $1.7 billion, mainly based on an increase in gross merchandise value — the value of goods handled on its platform. Instead of selling products directly, Shopify operates a service to help small businesses sell online. This unique niche diversifies it across a wide range of industries and allows it to grow as its clients grow.

Image source: Getty Images.

Management is leaning into this strategy with new initiatives like the Shopify New Retail Plan, which aims to help brick-and-mortar stores with things like staffing, inventory, and establishing an online presence. Shopify has also inked a deal with Global-e Online to create Shopify Markets Pro, a tool designed to help merchants sell in 150 different countries with features like website translations and customs compliance.

With a forward P/E multiple of 67, Shopify stock is far from cheap. But this reflects the company’s potential to rapidly improve top- and bottom-line performance. Third-quarter operating income increased from a loss of $346 million to a gain of $122 million in the period.

Focus on the fundamentals

Stock splits are exciting because they can increase investor interest in a particular company. That said, they have no impact on fundamentals, and potential shareholders should pay closer attention to metrics like revenue, profits, and valuation. While Celsius Holdings and Shopify are relatively expensive compared to the market average, both companies still look like good deals, considering their rapid top- and bottom-line growth rates.

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Will Ebiefung has positions in Global-e Online. The Motley Fool has positions in and recommends Celsius, Global-e Online, Monster Beverage, and Shopify. The Motley Fool has a disclosure policy.

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