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Headlines
- Valuation and Stock Splits: High share prices may deter some buyers, prompting companies to consider stock splits. A split reduces the per-share price without impacting overall value.
- Costco’s Performance: Costco, trading at around $801, has shown strong performance and might consider a stock split. The company recently reported significant revenue growth and increased membership fees.
- MercadoLibre’s Growth: MercadoLibre, trading at $1,774, has seen slower recent gains but outperforms the S&P 500 long-term. The company continues to expand in e-commerce and fintech sectors.
A common misconception is that a high share price indicates an expensive stock. Valuation, which reflects a stock's true cost, involves more than just the share price. Instead, the total number of shares affects the per-share price.
Investors might avoid high-priced stocks, particularly when fractional shares are not available. To address this, companies may opt for stock splits. A split doesn’t alter the overall value of an investor’s holdings but adjusts the per-share price to make the shares more accessible.
With some stocks nearing $1,000 per share, let's examine two consumer stocks that could potentially undergo a stock split.
- Costco
Bulk retailer Costco (NASDAQ:COST) has experienced a strong performance over the last three years, with shares increasing by 84% and currently priced at $801. While there has been no announcement regarding a stock split, Costco has previously conducted splits, including four over the past 34 years, with the most recent in 2000.
Despite no current plans for a split, Costco continues to demonstrate impressive results. In its third quarter of 2024 (ending in May), the company achieved a 9% increase in revenue year-over-year. This growth stemmed from a 6.6% rise in comparable-store sales and a 6.1% increase in traffic, with e-commerce sales up by 21%.
Costco's membership model is a key growth driver, with 75 million paid memberships reported in Q3, reflecting an 8% increase year-over-year. The membership renewal rate stands at 91%, and a $5 fee increase starting in September is expected to support continued strong performance.
- MercadoLibre
Latin American e-commerce and fintech firm MercadoLibre (NASDAQ:MELI) has had a less remarkable performance over the past three years compared to Costco, with shares up 12%. Nevertheless, it has outperformed the S&P 500 over the past five and ten years. Currently, MercadoLibre's shares trade at $1,774, and the company has yet to split its stock.
Recent Q2 2024 earnings revealed strong financial results, with revenue rising by 42% year-over-year. The company’s marketplace and fintech segments contributed significantly, growing by 53% and 28%, respectively. MercadoLibre’s user base is expanding, with a 19% increase in unique active buyers on its marketplace and a 37% rise in fintech monthly active users.
Despite no recent stock split announcement, MercadoLibre’s consistent growth in a rapidly developing region highlights its ongoing success and potential.
These companies demonstrate strong performance and growth potential, with or without a stock split. Costco’s robust membership model and MercadoLibre’s expansion in e-commerce and fintech showcase their fundamental strengths.
