Stock Split Hype Sweeps the Market as Walmart and Chipotle Announce Stock Splits: Potential for Additional Top Stock Splits on the Horizon

Stock Split Hype Sweeps the Market as Walmart and Chipotle Announce Stock Splits: Potential for Additional Top Stock Splits on the Horizon

The market loves a good stock split. When a company decides to split its shares, it reflects the success of the company and also indicates management’s confidence in its future. In other words, it’s almost always the best stocks demonstrating strong performance that are subject to stock splits.

The two newest split stocks currently dominating the market are Walmartwhose 3-for-1 stock split took place in February, and Chipotle Mexican Grillwhich announced a gargantuan 50-to-1 split last week. Both of these stocks are outperforming the broader market this year.

Will other actions follow? Costco wholesale (NASDAQ: COST) And Free market (NASDAQ: MELI) are two stocks that seem ready to be split.

The unbeatable membership model

Costco is a stock that has been beating the market for decades. It has an incredible and unbeatable retail membership model that generates customer loyalty, high traffic and strong sales. It charges $60 for a basic annual subscription, which members more than offset in savings on their annual purchases. Costco prices the products, which it sells primarily in bulk, with minimal margins to cover costs, and makes its profit on the fees.

Sales growth was slow for most of last year and even headed into negative territory, but that was mainly due to shoppers cutting back on purchases of large, expensive items. Traffic and volume increased, as did the number of members.

During the second quarter of fiscal 2024 (ended February 18), sales increased 5.9% year over year, driven by a 5.6% increase in comparable sales and an increase 5.3% of traffic. Earnings per share (EPS) rose from $3.30 to $3.92. Contributions increased 8.4% to $84 million, and paid household members increased 7.8% to $73.4 million. Renewal rates continue to be extremely high, with a rate of 92.9% in Canada and the United States and a global rate of 90.5%.

Costco has split its stock three times in the past, and the last time was 24 years ago. The stock is up nearly 1,500% since then, and 48% over the past year. Each share costs over $700 as of this writing.

Costco paid a special $15 dividend to shareholders earlier this year, and that is also expected to lead to an increase in member dues. Walmart and Chipotle highlighted their strong performance and continued opportunities in their stock split announcements, and that also applies to Costco. This could also be the year she finally splits her shares.

The leader in Latin American e-commerce

MercadoLibre is Latin America’s first e-commerce giant, similar to Amazon. Even though it is no longer so young, it operates in a booming market and continues to show exceptional growth in its e-commerce activity. Gross merchandise volume (GMV) increased 79% year-over-year (currency neutral) in Q4 2023.

Like Amazon, MercacoLibre has branched out into new businesses, and these are growing even faster. It has a large fintech business focused on digital payments, and total payments volume (TPV) grew 153% year-over-year in the fourth quarter. It offers incredible opportunities in off-platform POS, which are payments that are not made on its own market. Off-platform TPV increased 182% in the fourth quarter.

As part of the fintech segment, MercadoLibre also operates a relatively new credit business. This is a lucrative business that gives the company tons of cash to fund other businesses and invest for interest income. The credit portfolio increased by 33% year-on-year in the fourth quarter.

The company’s total revenue increased 83% year over year during the quarter. Net income was negatively impacted by a tax liability in the fourth quarter, but MercadoLibre still remains profitable, with $165 million in the fourth quarter.

MercadoLibre has been a public company since 2007 and has never split its shares. It has gained over 5,000% in its lifetime and today trades at a price of $1,540. Reaching four figures often leads to a stock split, but MercadoLibre has been in this range for some time. Its stock is about flat this year, down after the fourth-quarter report and declining earnings.

Unlike the other reasons mentioned above for other stock splits, a stock split could spur greater interest in MercadoLibre stock and signal that management is confident about the future. Either way, this is a great opportunity for investors to buy before MercadoLibre stock starts to rise again.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in MercadoLibre. The Motley Fool posts and recommends Amazon, Chipotle Mexican Grill, Costco Wholesale, MercadoLibre and Walmart. The Motley Fool has a disclosure policy.

Stock Split Fever Hits the Market Again with Walmart and Chipotle Stock Splits: These Top 2 Stocks Could Follow was originally published by The Motley Fool

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