Benefits of a split
There are benefits to a stock split even though it doesn't raise the value of your investments. By lowering the price of Starbucks' stock, management makes it easier for individual investors to buy and sell shares. Had the stock not split at all it would be priced at nearly $3,000 today, putting it out of reach for many investors to even purchase a single share.
A stock split also signals that executives are optimistic about the company's future. While announcing the last split, CEO Howard Shultz said it "takes place at a time when Starbucks shareholders are experiencing an all-time high in value as we continue to deliver world-class customer service and, in turn, record profits and revenue."
The next split
Starbucks' business has gotten stronger since Shultz said those words. Revenue is up 10% through the last nine months and operating profit has grown even faster -- up 12%.
Share price appreciation has been muted, though, as the company just revealed a growth slowdown in the key U.S. market. Comparable-store sales gains fell below 5% there for the first time in over six years.
Schultz and his team believe they'll quickly get back above that 5% mark, with help from a hugely popular loyalty program, along with initiatives like an improved food menu , online ordering and delivery , and small-footprint stores.
It last took about a decade between stock splits for Starbucks' business -- and its share price -- to climb to the point where another split made sense to management. It's anyone's guess when the next share count boost could happen, though, and that's why shareholders are better off following trends in operating metrics like comps and profitability.
More than most other stocks on the market, Starbucks has rewarded its patient shareholders with epic long-term returns. Net income was $2.4 billion last year -- up from $500 million a decade prior. Stock splits have been a consequence of that impressive growth and so they're likely to continue as long as the coffee giant keeps outgrowing the market.
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Demitrios Kalogeropoulos owns shares of Starbucks. The Motley Fool owns shares of and recommends Starbucks. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.