Shares of Nvidia Corp (NASDAQ:NVDA) popped more than 10% late last week following the announcement of a 4-for-1 stock split. The company said on Friday that the split has already been approved by the board. The company’s stock closed last week at about $600 per share which implies a split-adjusted value of roughly $150.00 per share.
A stock split is typically done to make shares more accessible to ordinary investors who typically avoid all stocks trading at a high price point. If this is the case, should investors take advantage of the split and look to add NVDA stock to their portfolio?
Outlook and growth
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Nvidia’s stock split will take effect on July 19, after markets close, and shares will start trading at the split-adjusted price on July 21. This gives investors roughly two months to buy the stock at the current price. Technically speaking, the total value of the shares doesn’t change. Owning 10 shares of NVDA at $600 is worth $6,000 which is the same as owning 40 shares at $150.
Nevertheless, NVIDIA stock currently trades at a P/E ratio of about 89.20. Its forward P/E ratio stands at 40.32. Earnings are expected to grow more than 52% this year and at a compounded annual growth rate of about 22% over the next five years.
The high expectations for long-term earnings growth value the stock at a PEG ratio of just 2.05. This is compelling to growth investors, regardless of a stock split.
Technically, shares of Nvidia appear to have recently bounced back off 2-month lows to trade at the current level of about $600. The stock still appears to have strong bullish momentum with the stock up nearly 4% on Monday morning as investors continued to react to Friday’s announcement of a stock split.
The upward momentum appears set to continue through this week as the sentiment remains positive. This creates bullish price targets at around the key resistance levels at $623 and $650. Key support levels can be found at $581 and $565, or lower at $538.
Bottom line: Buy Nvidia stock before split comes into effect
Nvidia is a quality company that shows massive potential for growth. The company’s announcement of a stock split last week will attract more investors as the shares become cheaper.
However, it is good to note that once the stock starts to trade at the split-adjusted price, the chances are that it will spike again due to a relative increase in demand. Therefore, it could be smarter to buy the stock now while it still looks expensive for some investors than waiting for the stock split to come into effect.