Although the technology sector has suffered in recent months, it has benefited from phenomenal growth over the last decade. Consequently, plenty of stocks that once traded at low nominal prices now fetch hundreds or thousands of dollars per share.
Both Alphabet and Amazon plan to execute 20-for-1 stock splits this summer to address this issue. However, high nominal prices continue to hamper enterprises such as ASML Holding (ASML 1.29%), Booking Holdings (BKNG -1.89%), and MercadoLibre (MELI -1.69%), and their share prices could reduce interest from small investors if the companies don't execute stock splits soon.
Let's find out a bit more about these three stocks that are overdue for a stock split.
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1. ASML Holding
Admittedly, ASML may have a larger issue with name recognition than with its price of approximately $580 per share. It supplies chip foundries with extreme ultraviolet lithography (EUV) equipment -- critical tools for manufacturing the most advanced semiconductors. But because those foundries are its only clients, it's also an easy stock to overlook.
Still, since ASML is the only producer of this EUV equipment, it has had to increase capacity itself to deal with rising demand. Its backlog is now valued at 29 billion euros ($31 billion).
In the first quarter, that backlog helped to drive reported revenue of 3.5 billion euros ($3.8 billion) and net income of 695 million euros ($746 million). While that was a significant drop from year-ago levels, ASML shipped some machines before final testing to meet high demand. Since the company does not recognize revenue until it completes final testing and the customer accepts the product, its accounting rules delayed some revenue recognition.
Nonetheless, ASML forecasts 20% net sales growth in 2022. Also, the stock is trading down by approximately 35% from its $896 per share peak, a price that should more strongly prompt the company to consider a split.
Additionally, even though its P/E ratio of 39 may appear high in today's market, it seems reasonable considering the forecast growth of the industry over the next few years. That, plus a lower nominal stock price, could persuade more investors to take a chance on this relatively unknown but essential company.
2. Booking Holdings
Although it sells for around $2,250 per share now, investors may know the former Priceline best for a reverse stock split. After its share price fell to as low as $1, it approved a 1-for-6 reverse split in 2003. The boost that gave to the stock may have played a role in its ultimate recovery. Now, it's poised to become the fourth-most expensive stock in terms of nominal price after Amazon splits its shares.
Moreover, now that the travel industry is in recovery mode, the stock could benefit from powerful tailwinds. The company generated $2.7 billion in revenue in Q1, a 136% year-over-year increase. From that, it booked non-GAAP net income of $161 million, compared to a loss of $215 million in the same quarter last year. That non-GAAP number excludes $955 million in losses from equity securities.
Furthermore, while the stock price is down by 4% over the last 12 months, it has largely sidestepped the sell-off in tech stocks and has almost kept pace with the S&P 500. Additionally, its price-to-sales ratio of around 7 does make it more expensive than Expedia, which sports a ratio of roughly 2, but cheaper than Airbnb, which has a price-to-sales ratio of 12. These factors indicate that a lower nominal stock price combined with continuing revenue growth could help Booking Holdings fly higher.
3. MercadoLibre
At just over $800 per share, MercadoLibre sells at a 60% discount from the 52-week high of $1,970 per share it reached last summer. But the reasons to buy MercadoLibre go beyond its share price. Amid slowdowns in other tech-oriented businesses, it remains in growth mode in an environment of rising prices. Its original e-commerce business continues to grow, even as the company builds out its related businesses such as Mercado Envios, which has emerged as a regional leader in order fulfillment.
However, its fintech enterprises, Mercado Pago and Mercado Credito, have arguably become its most prominent successes. MercadoLibre does not break down revenue by segment. Still, in Q1, its $25.3 billion in total payment volume far exceeded its $7.7 billion in gross merchandise volume.
Nonetheless, both segments grew rapidly, allowing the $2.2 billion in revenue for Q1 to rise 63% compared to the year-ago quarter. This led to $65 million in earnings, a marked improvement from the $34 million loss it booked in the prior-year period. Furthermore, its price-to-sales ratio is now about 5. That's its lowest level since 2009. This provides investors with an unusual opportunity to buy this massive growth engine, and a lower nominal stock price could draw more even prospective buyers.
