Shopify, Alphabet, Amazon, and Tesla stocks are splitting — which ones are the best buys?

These tech superstars offer compelling reasons to buy and hold for the long haul.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shopify (NYSE: SHOP) just joined Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG), and Tesla (NASDAQ: TSLA) in announcing stock splits. Shares of the e-commerce software company will undergo a 10-for-1 split, and a "founder's share" for co-founder and CEO Tobi Lütke is also being proposed (which would give Lütke 40% of total Shopify voting power).

Companies split their stocks for good reasons, like to better manage stock-based compensation to employees or share buybacks. However, a stock split by itself doesn't change a company's fundamental value, so business health should be assessed rather than stock price when contemplating a buy. With that in mind, here's why each of these stock split companies is a worthwhile long-term buy-and-hold right now. 

1. Shopify: A 100-year mission still early in its development

I'll start with Shopify, because this is my favorite company among the stock split candidates discussed here. I believe this stock also has some of the biggest upside potential in the next decade and beyond. 

Shopify is on a "100 year mission to make commerce better for everyone." Since its IPO in 2015, shares are up over 2,300%, and that's despite the recent 60%-plus sell-off from all-time highs. Suffice to say the journey has been highly profitable so far. Shopify's software suite helps aspiring entrepreneurs, small businesses, and fast-growing retail brands manage their sales online and via traditional in-person channels. Services include everything from website management to social media marketing to digital payment acceptance. 

Shopify's focus over the next couple of years will be scaling its Fulfillment Network, local warehouses from which Shopify users can manage inventory and quickly ship orders to customers. In an era of fast fulfillment, giving small merchants similar shipping options as bigger retailers will be a big challenge for Shopify -- but one that could be highly profitable if it can pull it off. 

Given the expectation for continued double-digit percentage growth, Shopify stock appears cheap at just 27 times trailing 12-month earnings. It isn't, especially considering Shopify Fulfillment Network is going to cost about $1 billion to build over the next few years. Nevertheless, this company has proven its worth in the retail world, and it has a mission that aligns with the benefit of its large and expanding user base. Shopify looks like a fantastic buy right now ahead of its proposed stock split.

2. Alphabet: The internet is a secular growth megatrend

In July, Google parent company Alphabet will undergo a 20-for-1 stock split. The last time the internet search leader underwent such activity was in 2014. Since then, Alphabet shares have risen over 350%.

There are plenty of reasons to believe Alphabet will continue to provide steady growth for many years to come. For one thing, its bread-and-butter business selling digital ads is still steadily gobbling up global market share of the overall advertising industry (on pace to reach $1 trillion a year in global spending). Digital ads have a lot of benefits for marketers, and they're highly profitable for Google. 

Alphabet is using those profits from its core Google business ("Google Services" generated an operating profit margin of 37% in 2021) to fuel lots of other projects. Google Cloud is chief among them. Organizations are migrating their IT workloads to data centers and adopting cloud-based services, providing Google with a second secular growth megatrend beyond just digital ads. Add in Google Payments, YouTube, various subscription services, self-driving cars, and more, and Google has no shortage of directions to take its business. 

Plus this is one of the deepest-pocketed organizations around. Alphabet had $140 billion in cash and short-term investments on hand at the end of 2021, offset by debt of only $14.8 billion. Trading for just 26 times trailing 12-month free cash flow, Alphabet stock looks like one of the best long-term values out there right now.

3. Tesla: Still massive upside for the EV market

Tesla had its last 5-for-1 stock split over the summer of 2020, and shares have doubled in value since then. In recent regulatory filings, the company has indicated it will put another stock split on the table for shareholders to vote on.

The real reason to invest in Tesla right now, though, is the massive consumer migration from traditional internal combustion engine vehicles to electric vehicles. Of the nearly-67 million vehicles sold worldwide in 2021, only about 6.5 million were electric vehicles (EVs). Tesla delivered just over 936,000 vehicles in 2021.

As legacy automakers and other EV start-ups fire up their assembly lines for next-gen cars, it isn't reasonable to expect Tesla to continue commanding such a large slice of the EV market share. However, management thinks it can continue growing sales at roughly the same rate as the EV space overall, about 50% per year, for the next few years. For an automaker that just cranked out over $45 billion worth of vehicle sales in 2021 (less environmental regulatory credits sold to other automakers), that's an ambitious growth rate.

A few catalysts could help Tesla supercharge its way to $100 billion in annual sales and beyond. Its new Gigafactories in Berlin and Austin, Texas, are now live. Though temporarily shuttered due to a coronavirus outbreak, the Gigafactory in Shanghai will handle production in Asia. More factories are likely on the way, as are new models like the Cybertruck. At 71 times one-year forward expected earnings, fantastic execution of its expansion plans is already priced into this stock. But if you think the move to EVs will continue at a rapid pace for the next decade, there's a lot to like about Tesla even at these sky-high prices.

4. Amazon: A fantastic allocator of capital goes on a spending spree

For in-the-know investors, Amazon's mind-boggling run higher isn't simply a story of e-commerce expansion. It's true, Amazon used its early lead in selling online to its advantage, but that's not really what has made the stock move nearly 155,000% higher since its IPO in 1997. Rather, it's been the company's success in allocating capital to highly profitable new projects adjacent to its e-commerce empire that has been the key ingredient to its success. 

Amazon Web Services (AWS), the cloud computing segment that started simply by "renting out" extra data center capacity from the e-commerce segment, generated only 13% of all revenue last year. However, AWS operating profit accounted for 75% of Amazon's grand total. Other services like advertising on its merchant platform accounted for much of the rest of operating income. 

Amazon spent an incredible $65 billion on capital expenditures (property, plant, and equipment) to support its long-term growth last year. With infrastructure costs only increasing thanks to inflation, that pace of spending isn't likely to abate anytime soon. For reference, Amazon's capital expenditures were $20 billion in 2020. The explosion in spending in support of steady expansion has put pressure on the e-commerce giant's bottom line. Shares currently trade for 47 times trailing 12-month earnings, and 240 times trailing 12-month free cash flow.

However, if you believe Amazon will continue to be an excellent allocator of capital to the right projects at the right time, there's a lot to like about that explosion in capital investment. Amazon is also undergoing a 20-for-1 stock split in May, but there is a multitude of longer-term reasons to buy and hold beyond this one-time stock split event. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nicholas Rossolillo and his clients own Alphabet (C shares), Shopify, and Tesla. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Alphabet (A shares), Amazon, Shopify, and Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Alphabet (C shares) and has recommended the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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