A wave of stock splits has come and gone in the tech industry. Among the high-profile companies that have split their stock in the last few years are Tesla, Apple, Alphabet, Amazon, and Shopify.
Companies tend to split their stocks after a large run-up in price or when the individual share price is high enough that the company believes it dissuades individual investors from buying the stock.
One such candidate for a stock split based on those criteria is Latin American e-commerce company MercadoLibre (MELI +1.42%). MercadoLibre currently trades for around $1,300 per share, making it eligible for a stock split based on price as it could easily split its shares 10-for-1 and still trade at a reasonable price of $130.
So will MercadoLibre split its stock? Let's take a closer look at what the company's history shows.
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All about MercadoLibre
MercadoLibre went public in 2007, and the stock has been a top performer on the market since then, as the chart below shows.
MercadoLibre has delivered a return of nearly 5,000% since 2007, thanks to the rapid growth of its e-commerce business, which has continued to put up strong numbers even in difficult environments for online retail. Additionally, the company's digital payments business, MercadoPago, has taken off with the help of its point-of-sale (POS) systems used in brick-and-mortar stores.
And the company has layered on other complementary businesses, like a logistics operation in MercadoEnvios, the MercadoCredito credit business, and MercadoFondo, its asset management arm. Additionally, the company is building a high-margin advertising business, leveraging the traffic on its marketplace.
MercadoLibre has never split its stock, its current price reflecting its gains since going public at $18 per share. However, that doesn't mean a stock split is out of the question.
Will MercadoLibre split its stock?
MercadoLibre's management hasn't discussed a stock split, but a split could be necessary eventually.
It would be unlikely for the stock to gain another 4,000%. However, even if shares just tripled from here, that would make the individual share price nearly $4,000, which is unaffordable for many retail investors, notwithstanding the ability to buy fractional shares.
However, MercadoLibre stock is still down more than a third from its peak during the pandemic. So if management was interested in doing a split at the current price, it seems it would have done one already. While a stock split in the future isn't out of the question, one at the current price seems unlikely.
NASDAQ: MELI
Key Data Points
Does a stock split matter?
Some evidence shows that stocks tend to outperform the S&P 500 in the year after a stock split, but a stock split itself doesn't do anything to change the underlying value of the shares or the business. By splitting, the company is simply cutting the pie into more pieces. The individual stakes investors hold are still worth the same.
For MercadoLibre, the most important determinant of the stock performance will be the results of the business. The company's most recent earnings show the business is on fire despite a challenging macro environment.
Revenue in the fourth quarter jumped 56.5% on a currency-neutral basis to $3 billion, and operating margin surged to a record 11.6% as its higher-margin businesses, like MercadoPago, MercadoCredito, advertising, and its namesake marketplace, are ramping up.
In other words, if management continues to execute and the company maintains its strong growth rate, it won't matter whether there's a stock split. But the stock may have to split if shares double or triple from here, as they will eventually get too expensive.
