Split-Up Alert for Stocks: Two Consumer-focused Companies Showing Possible Split Potential
Investing myths often dictate that a high share price equates to an expensive stock. However, this isn't always the case. Valuation, a measure of a stock's cost, is determined by multiple factors beyond the share price. The number of shares attached to a company's market value significantly impacts the per-share price calculation.
Some investors might hesitate at the sight of stocks with triple- or quadruple-digit share prices, particularly without access to fractional shares. To overcome this, companies decide on stock splits. It's crucial to note that a stock split doesn't change the value of an investor's shares but makes them more accessible to a wider investor base.
With share prices nearing the $1,000 mark, let's scrutinize two consumer stocks that could potentially benefit from a stock split.
1. Costco
Bulk retailer Costco has experienced impressive growth over the past three years, boasting a 84% increase in stock value. Currently trading at $801, there's no news of a stock split yet. However, Costco has a history of stock splits, having split its shares four times in the last 34 years, most recently in 2000.
Regardless of a potential stock split, Costco's recent results are noteworthy. In the third quarter of 2024, Costco reported a 9% revenue growth, a significant increase driven by its membership model. In fact, total paid memberships amounted to 75 million, up 8% YoY, with a worldwide membership renewal rate of 91%. Costco also raised its membership fee by $5 beginning in September, ensuring its financial strength moving forward.
2. MercadoLibre
Latin American e-commerce and fintech company MercadoLibre has experienced lesser growth in the past three years, with shares up only 12%. However, it has consistently outperformed the S&P 500 over the past five and ten years. MercadoLibre's shares currently trade at $1,774 without a stock split announcement.
MercadoLibre reported a 42% revenue growth for Q2 2024, primarily driven by its marketplace and fintech segments. The company also experienced user growth in both its e-commerce marketplace and fintech offerings, demonstrating its long-term potential in the rapidly developing Latin American market.
While neither company has revealed plans for a stock split, both are robust businesses with impressive growth prospects. A stock split might make these stocks more accessible to some investors, but their underlying fundamentals are the primary reasons to consider investing in them.
Investors who are hesitant about investing in Costco due to its high share price might want to consider the company's history of stock splits, which have made its shares more affordable for a wider investor base. Despite not having announced a stock split recently, Costco's impressive growth in revenue and membership base indicates a strong financial position.
Even without the potential benefit of a stock split, MercadoLibre remains an attractive investment opportunity. Its consistent outperformance of the S&P 500 over the past decade, combined with its robust growth in revenue and user base, indicates a solid financial performance and potential for future gains in the Latin American market.