Stock-split fever has infected many investors in 2024. That perhaps shouldn't be surprising considering the sheer volume of stock splits. There have been more than 450 forward stock splits year to date, including reverse stock splits. Additional stock splits are on the way in the next few weeks.
Several stocks of companies that have already conducted splits this year have been big winners. For example, Microstrategy's shares have skyrocketed over 420% with Nvidia soaring around 190%.
One stock-split stock has been a disappointment this year. However, it could crush the market over the next 12 months, according to Wall Street.
Meet the potential market-crusher
Lam Research(NASDAQ: LRCX) conducted a 10-for-1 stock split following the market close on Oct. 2, 2024. In May, the semiconductor fabrication equipment provider announced plans for the stock split along with a $10 billion stock buyback. CFO Doug Bettinger said the stock split would "enable a larger proportion of Lam's worldwide employee base to participate in the company's employee stock plans."
In the weeks following Lam's announcement of its planned stock split, its share price took off. However, the stock began to tumble in July and is now roughly 36% below its peak.
Wall Street remains optimistic about Lam Research, though. The average 12-month price target for the stock reflects an upside potential of 29%. That's much more bullish than the predictions for the S&P 500. Goldman Sachs thinks the S&P will rise around 9% over the next 12 months. Evercore ISI expects the index will deliver a gain of around 12% by mid-2025. On the other hand, Stifel analysts predict a steep S&P 500 sell-off.
Of the 32 analysts surveyed by LSEG in November, 16 rated Lam Research as a "buy" with four viewing the stock as a "strong buy." The other 12 analysts recommend holding the stock. None of the analysts surveyed by LSEG saw Lam as a stock to sell. Even the most pessimistic price target for Lam was higher than its current share price.
Why analysts like Lam Research
We don't have to talk with the 20 analysts who rated Lam as a "buy" or "strong buy" to get a good feel for why they like the stock. It boils down to the company's growth prospects.
Spending on NAND flash memory remains in a slump. However, I think Wall Street expects a rebound. Lam certainly does. CEO Timothy Archer said in the company's third-quarter earnings call that technology updates should boost investments in NAND. He predicted that more customers will convert to advanced nodes in 2025. Archer added, "With the industry's largest installed base of 3D manned equipment, Lam should benefit disproportionately as these upgrades occur."
Lam could expand its market share in advanced extreme ultraviolet lithography (EUV) patterning next year as well. This EUV patterning is used to print layers on silicon wafers to make semiconductor chips. Lam has also emerged as a leader in advanced packaging, which combines multiple chips to improve performance and reduce costs.
I'd wager that analysts are generally positive about Lam Research's valuation, too. The stock's price-to-earnings-to-growth (PEG) ratio based on five-year earnings growth projections is 1.44. While that's not a bargain valuation, it's lower than the 1.72 PEG multiple for Lam's top rival, Applied Materials(NASDAQ: AMAT).
Is Wall Street right about this stock-split stock?
Maybe Lam Research will hit Wall Street's consensus price target over the next 12 months; maybe it won't. However, I think analysts are right to be bullish about this stock's long-term potential.
Granted, Lam faces some risks. China, which accounted for 37% of the company's total revenue in Q3, could be a volatile market. The possibility of steep tariffs on imports to the U.S. could hurt Lam financially.
Still, I expect the demand for NAND flash memory will bounce back just as it has in the past. Lam is well-positioned to benefit if and when this happens. Whether or not the stock jumps 29% over the next 12 months, it should be a solid winner in the long run.
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Applied Materials, Goldman Sachs Group, Lam Research, and Nvidia. The Motley Fool has a disclosure policy.
