MercadoLibre (MELI 0.74%) has become notable for its stock price. One share now costs approximately $1,250 as of the time of this writing, making it one of the more expensive stocks in terms of nominal price.
While far from a record, many pricier U.S. stocks such as Alphabet and Amazon have each approved stock splits. With MercadoLibre frequently compared to Amazon, one might wonder whether the Latin American e-commerce conglomerate is next.
The rise of MercadoLibre
Founded in 1999, MercadoLibre has emerged as the e-commerce leader in its region. And like Amazon, it has used this success to spawn new businesses.
As a cash-based society, Latin Americans struggle to buy online. For this reason, MercadoLibre created Mercado Pago. This subsidiary pioneered Latin American fintech as it allowed customers outside of the banking and credit system to make purchases online. After seeing Mercado Pago's popularity, it also opened the platform to those not buying from the company. The company has also done the same thing with Mercado Envios, a subsidiary that deals with the unique fulfillment and logistics challenges in its home region.
Additionally, MercadoLibre has become one of the more notable growth names since it began trading in 2007. The financial crisis took the stock briefly below $8 per share. However, those who bought at that time and held have seen their investment return more than 150-fold. That includes the recent drop of more than 35% from its all-time high.
Moreover, MercadoLibre maintains a rapid growth pace, and many investors consider this hot e-commerce stock a buy. It produced $7.1 billion in revenue in 2021, a 78% increase compared with 2020. It also turned profitable in 2021, reporting $83 million in income. Such growth makes its price-to-sales (P/S) ratio of nine more tolerable, particularly since that sales multiple is near a multi-year low.
On the surface, a stock split would probably not affect this growth story. One share at $1,250 carries the equivalent value of 10 shares at $125 each or 100 shares worth $12.50 per share.
However, the stock has never split and the company has shown no indication it plans a split. This leaves many small investors unable to afford whole shares. At the current price, a $6,000 maximum annual contribution to an IRA buys only four shares. While it is possible to purchase partial shares, this could make MercadoLibre stock less attractive to U.S. investors.
Moreover, the problem is more acute in MercadoLibre's key markets. MercadoLibre trades on Latin American exchanges such as the Mexican Bolsa. Currently, MercadoLibre sells for just under 25,000 pesos on the Bolsa, closely approximating the U.S. share price. Mexico is also one of MercadoLibre's primary markets.
Nonetheless, according to the OECD, the average Mexican earns almost $16,300 per year after taxes. Even if the average Mexican consumer saves 10%, those yearly savings would only buy one whole share of the company at current prices. While Mexicans can benefit from buying MercadoLibre products, share ownership is financially out of reach for the average Mexican earner.
Prospects for a stock split
As mentioned before, MercadoLibre has never split its stock and has shown no indication it will do so. However, the nominal share price has become pricey, and this high price stands out further amid Alphabet's and Amazon's upcoming splits.
Admittedly, a stock split does not change the financials for MercadoLibre. Still, with the stock well off its high, making MercadoLibre shares affordable to more investors could help the company climb out of a bear market.