One of the most notable developments over the past couple of years has been the reemergence of stock splits. With the debut of low- and no-cost trading, investors no longer need to buy stocks in round lots of 100. Yet with prices that exceed more than $1,000 per share in some cases, a large number of less affluent investors still gravitate toward lower-cost stocks.
As a result of this phenomenon, stock splits are back in vogue. In 2022 alone, numerous companies that are popular with investors split their shares. These included (in the order of their split completion date):
- Amazon authorized a 20-for-1 split payable June 3, 2022.
- DexCom enacted a 4-for-1 split payable June 10, 2022.
- Shopify completed a 10-for-1 split payable June 28, 2022.
- Alphabet finished a 20-for-1 split payable July 15, 2022.
- Tesla executed a 3-for-1 split payable Aug. 24, 2022.
- Palo Alto Networks implemented a 3-for-1 split payable Sept. 13, 2022.
When you consider the fact that stock splits don't change the underlying value of the company, it's easy to dismiss them as a gimmick. However, the above list clearly suggests that businesses still feel the need to keep shares affordable for the average investor. Furthermore, given the general market resurgence in 2023, there are a number of popular companies with stock prices sufficiently high enough to warrant a downward adjustment. With that in mind, here are three stocks that could have splits on the horizon.
Image source: Getty Images.
1. MercadoLibre
Restrained consumer spending has hit many e-commerce platforms hard over the past year or so, but MercadoLibre (MELI -1.79%) might be the exception that proves the rule. As the leading provider of online retail and digital payments in its native Latin America, the company has largely bucked the trend. By providing a platform for others to buy and sell online, along with the region's most popular digital payment method, MercadoLibre has sidestepped the downturn, generating strong double-digit -- and in some cases, triple-digit -- returns.
The company's growing ecosystem of services includes its e-commerce marketplace, fintech, logistics, digital advertising, classifieds, and digital storefronts. MercadoLibre closed out 2022 in fine fashion, with revenue of $10.5 billion jumping 49%, while earnings per share skyrocketed 473% to $9.57.
The headliner of MercadoLibre's business is the company's fintech and digital payment system, MercadoPago. After widespread adoption of its platform, it made the leap to third-party websites and eventually brick-and-mortar stores. The fintech segment grew more than 94% in 2022, and now accounts for two-thirds of the company's net revenue.
Over the past decade, the company's robust growth is even more evident. Revenue surged 2,610% over the past 10 years, while net income rose 570%. This has fueled MercadoLibre's soaring share price, which is up more than 1,000%, recently clocking in at $1,254 -- a price that's just begging for its first stock split.
2. Chipotle Mexican Grill
Even as the economy tanked, consumers couldn't seem to get enough of Chipotle Mexican Grill (CMG 0.40%). Resilient sales and pricing power, along with its increasing digital prowess, resulted in a winning combination that defied the downturn.
One of the biggest strategic growth drivers has been the company's successful digital strategy. Chipotle Rewards has more than 30 million members, many of whom participate in digital ordering and pickup. This drove digital orders to grow faster than dine-in sales, leading them to account for more than 39% of the company's food and beverage revenue in 2022.
The business is also leaning into its Chipotlane strategy, which adds an additional food assembly line and drive thru for mobile order pickup. Late last year, Chipotle announced the opening of its 500th Chipotlane location. Management said this not only enhances the guest experience, but also significantly increases sales, profit margin, and return on invested capital (ROI).
The company's focus on these winning playbooks helped backstop its growth, even as the economy tanked. Revenue grew 14% in 2022, while net income surged 38%. This helped to cap off a remarkable decade during which revenue climbed 190%, fueling a net income increase of 232%. This boosted Chipotle's share price by more than 483%.
As a result, Chipotle's stock is now just 4% off a new all-time high hit just last month. Furthermore, with a share price that closed above $2,058 recently, Chipotle could be poised for its first stock split ever.
3. Booking Holdings
After a dearth of travel for several successive years, vacations are back. In fact, some experts expect 2023 to have the busiest travel season ever. This bodes well for Booking Holdings (BKNG -0.47%). After plunging as much as 30% last year, the stock has rebounded with a vengeance and is now less than 3% off the peak it reached in May.
Consumers are no doubt familiar with Booking's family of brands, which include Booking.com, Priceline, Agoda, Rentalcars.com, Kayak, and OpenTable.
In its Q1 report, Booking revealed the company achieved new all-time quarterly records in terms of room nights (274 million) and gross bookings ($39.4 billion), equaling year-over-year growth of 38% and 44%, respectively. Excluding the impact of fluctuations in foreign exchange rates, first-quarter gross bookings increased 52%.
This resulted in total revenue of $3.8 billion, up 40% year over year, while also generating a profit of $266 million, compared to a $700 million loss in the prior-year period.
Booking Holdings' stunning comeback has driven its share price to more than $2,708 recently, moving it to the head of the class for a potential stock split.
Data by YCharts
Every rose has its thorns
While each of these stocks outperformed the broader market indexes over the past decade, they aren't exactly cheap. Chipotle, Booking Holdings, and MercadoLibre are selling for 5, 4, and 4 times next year's sales, respectively, when most experts agree a reasonable price-to-sales ratio is between 1 and 2.
That said, as illustrated above, each company has a strong record of long-term outperformance that makes it deserving of a premium -- and maybe even puts a stock split in its future.
