The S&P 500(SNPINDEX: ^GSPC) has been squarely in rally mode since the end of 2022, with a number of positive developments fueling its advance. Economic conditions have improved, artificial intelligence (AI) has gone viral, the U.S. election yielded less drama than expected, and the Federal Reserve Bank has already made two interest rate cuts, with more to follow. After gaining 24% last year, the benchmark index is up roughly 27% so far in 2024 (as of this writing). Students of market history will note the market will likely continue to gain ground in 2025.
Going back 50 years, the S&P 500 has been in positive territory 73% of the time. Additionally, in years of back-to-back gains of more than 20%, the S&P has risen an average of 12%, which suggests the benchmark still has room to run.
As a result of a resurgence in forward stock splits, investors are reexamining companies that split their shares, knowing these companies have historically outperformed their peers, delivering strong operational and financial results with corresponding stock price gains.
Let's review two companies that are worth a look.
Image source: Getty Images.
1. Chipotle
One long-term winner investors should be watching is Chipotle(NYSE: CMG). The stock has delivered gains of 42% so far this year and 411% over the past decade (as of this writing). This prompted the company to initiate a massive 50-for-1 stock split, which was completed in late June.
Despite its impressive rise thus far, the same factors that drove Chipotle's robust results will likely fuel further gains. Management's two-pronged digital strategy has been a game changer for the company. Chipotle boasts an industry-leading rewards program, with more than 40 million members, which helps keep its most loyal customers engaged -- most of whom use its mobile ordering.
Additionally, the company has been focusing heavily on its Chipotlanes -- dedicated prep lines and drive-thrus specifically for digital orders -- which free up front-line staff to deal with in-restaurant customers. This strategy has not only increased total sales, but also boosted margins and profitability.
Chipotle's financial results help highlight its success. In the third quarter, Chipotle generated revenue that jumped 13% year over year to $2.8 billion, resulting in diluted earnings per share (EPS) that jumped 22% to $0.28. Helping drive the results were same-store-sales that climbed 6%. Of the 86 locations opened during the quarter, 73 included a Chipotlane, which shows management is leaning into this winning strategy.
I'd be remiss If I didn't address Chipotle's valuation. The stock is trading for a hefty 60 times earnings, far ahead of the multiple of 31 for the S&P 500. However, this shouldn't be viewed in a vacuum. Over the past 10 years, Chipotle's average price-to-earnings (P/E) ratio is roughly 83, which suggests its current valuation is historically cheap. Additionally, the stock has risen 411% over the past decade, roughly twice the gains of the broader market.
That helps illustrate why Chipotle is still a buy.
2. Deckers Outdoor
Another long-term winner that investors shouldn't sleep on is Deckers Outdoor(NYSE: DECK). The stock has delivered gains of 88% so far this year and 1,260% over the past 10 years (as of this writing). This encouraged management to conduct a 6-for-1 forward stock split, which was completed in mid-September. Despite its hefty gains, there's reason to believe there's much more in store for the outdoor footwear and apparel specialist.
Deckers is known for its high-performance footwear brands, including Hoka and Ugg, among others. The company has been expanding its international footprint and working to increase its direct-to-consumer sales -- which has helped to increase margins.
For its fiscal 2025 second quarter (ended Sept. 30), the company generated revenue of $1.31 billion, up 20% year over year, while its diluted EPS of $1.59 jumped 39%. Adding to the festivities, management increased its full-year outlook, the second such increase in as many quarters. Deckers is now guiding for revenue growth of 12%, up from its previous forecast of 10% growth.
Deckers has a valuation that seems a bit pricey, selling for 37 earnings. However, that's actually about average over the past 10 years. Furthermore, for its fiscal 2026, which begins in late March, that declines to a multiple of 33 times earnings. While that's still a premium, it's not bad for a company that's growing like wildfire and delivered gains of 1,260% over the past decade -- more than six times the returns of the S&P 500.
Based on its strong history and continued execution, Deckers is worth a look.
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Danny Vena has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Deckers Outdoor. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
