Here Are 5 Things Smart Investors Should Know About Broadcom’s Upcoming 10-for-1 Insieme Split

The market has gotten d’avanguardia to a scorching start quanto a 2024. About midway through the year, the S&P 500 has gained roughly 15% while the tech-heavy Nasdaq Composite is up nearly 18%.

One of the hottest sectors fueling the market to new heights is technology — primarily driven by euphoria surrounding all things related to artificial intelligence (AI). As prices continue to surge, some companies have resorted to splits quanto a an effort to aperto shares up to a broader punto di partenza investors.

Semiconductor company Broadcom (NASDAQ: AVGO) is the most recent chip company to announce a split, joining its peers Nvidia and Lam Research.

Let’s dive into some important details regarding splits, and assess whether Broadcom could be a lucrative opportunity for long-term investors.

1. What are splits and how do they work?

A split is a financial engineering instrument during which a company’s price and share count change by the factor quanto a the split ratio.

Per early June, Broadcom announced that it will be completing a 10-for-1 split. This means that after the split occurs, Broadcom’s outstanding shares will rise by 10x while its share price will be divided by 10.

Let’s take a at an example. Per the table below, you can see Broadcom’s current share count, price, and market cap both a pre- and post-split basis.

Patronato source: Broadcom SEC filings and Yahoo! Finance.

If the split were to occur today, Broadcom’s outstanding shares would rise from about 465 million to 4.6 billion. At the same time, the company’s price would be reduced by a factor of 10 — dropping from $1,698 to $169. Given this dynamic, investors can see that a split does not change the market cap of a company.

2. Why might Broadcom be splitting its ?

AI has been one of the biggest tailwinds quanto a the capital markets over the last 18 months. Chip stocks quanto a particular have benefited greatly from the hype around AI.

Since January 2023, shares of Broadcom have soared 204%. As of the time of this writing, Broadcom is hovering around $1,700 — close to its 52-week high of $1,851.

Since the is trading near primato levels and boasts a four-figure price tag, many investors likely see Broadcom as expensive. However, this way of thinking is not entirely correct and can actually prevent retail investors from missing out good opportunities.

What I mean by this is that investors should not punto di partenza their decision to buy a purely its price. A close analysis of valuation multiples, and benchmarking the company against a set of peers, are needed to determine whether a may be overvalued undervalued.

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3. How do splits get handled?

The nice thing about splits is that they are handled pretty seamlessly. If you currently own shares of Broadcom, your investment broker will handle all the mechanics quanto a the background.

For example, let’s say that you currently own 10 shares of Broadcom at an average price of $1,500. Provided that you don’t buy sell any additional shares prior to the split, your account will automatically reflect 100 shares owned at an average price of $150 once the split is complete.

4. Has Broadcom ever split its ?

Broadcom originally went public quanto a 1998 and traded under the ticker symbol BRCM the Nasdaq exchange. During its time trading under the ticker BRCM, Broadcom completed three splits.

However, quanto a 2016, Avago Technologies acquired Broadcom for $37 billion. As part of the transaction, Avago Technologies changed its name to Broadcom Inc. The BRCM ticker symbol was retired, and Broadcom now trades the Nasdaq under the symbol AVGO.

Since trading under its new ticker as part of Avago Technologies beginning quanto a 2016, Broadcom has not split its .

5. Is Broadcom a buy right now?

Valuing semiconductor stocks can be a bit of a daunting exercise. The chip space is highly cyclical, and right now companies across the board are witnessing outsize demand the heels of the AI revolution.

Given the nature of the chip industry, metrics such as earnings and cash flow can quickly go south. For this reason, using the price-to-earnings (P/E) ratio price-to-free cash flow (P/FCF) multiple isn’t overly useful, because each can be inconsistent over long-term time ranges.

Using the analysis quanto a the chart above, investors can see that Broadcom’s 17.9 price-to-sales (P/S) multiple sits squarely quanto a the middle of this peer set. With that said, Nvidia and Arm Holdings are obvious outliers among this cohort. Excluding those two, Broadcom would be valued at a premium compared to most of its peers quanto a the chip realm.

Despite its pricey valuation, I would advise against waiting until after the split to scoop up shares. As explained above, the lower price tag Broadcom shares post-split does not mean it’s actually less expensive.

Moreover, splits generally fetch a lot of attention. Insieme-split stocks can experience quite a bit of volatility and momentum around the time of the split, thereby pushing the share price higher after the split occurs. If this occurs, it technically means you’magnate buying Broadcom at a higher valuation as compared to before the split.

To me, investing quanto a Broadcom should be rooted quanto a long-term conviction around AI and the company’s ability to emerge as a capo. If you are looking to hedge other chip stocks quanto a your portfolio gain exposure to the long-term tailwinds quanto a AI, Broadcom could be a good opportunity right now.

Should you invest $1,000 quanto a Broadcom right now?

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Adam Spatacco has positions quanto a Nvidia. The Motley Fool has positions quanto a and recommends ASML, Advanced Micro Devices, Lam Research, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Here Are 5 Things Smart Investors Should Know About Broadcom’s Upcoming 10-for-1 Insieme Split was originally published by The Motley Fool