Stock-split fever is sweeping the market again as Walmart and Chipotle split: These two top stocks could follow suit

market Love a good stock splitWhen a company decides to do a stock split, it’s a sign of the company’s success and management’s confidence in the company’s future. In other words, stock splits are almost always top stocks that are strong performers.

Two of the newest stock split stocks on the market right now are Walmartwhose 3-for-1 stock split took place in February, and Chipotle Mexican BBQ, the company announced a massive 50-for-1 stock split last week. Both stocks have outperformed the market this year.

Will other stocks follow? costco wholesale (NASDAQ: COST) and free market (NASDAQ: MELI) There are two stocks that look poised for stock splits.

Unparalleled membership model

Costco has been a market-beating stock for decades. It has an incredible, unparalleled retail membership model that generates customer loyalty, high traffic, and strong sales. Its base annual membership fee is $60, which members can offset with their membership. Save on annual purchasing costs. Costco marks up prices on products, which it sells mostly in bulk, with a slim profit margin to cover costs, and makes profits through fees.

Sales growth was slow or even negative for much of last year, but that was largely due to shoppers cutting back on big-ticket, expensive items, but traffic and volume increased and memberships increased.

In the second quarter of fiscal 2024 (ended February 18), sales increased 5.9% annually, driven by comparable sales growth of 5.6% and traffic growth of 5.3%. Earnings per share (EPS) rose from $3.30 to $3.92. Membership fees increased 8.4% to $84 million, and paying family members increased 7.8% to $73.4 million. The renewal rate continues to be high, with 92.9% for Canada and the United States and 92.9% for global membership. The rate reaches 90.5%.

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

Costco paid a $15 special dividend to shareholders earlier this year, and membership fees will also rise. Walmart and Chipotle pointed to their strong performance and continued opportunity in their stock split announcements, and the same applies to Costco. This could also be the year it finally splits its stock.

Latin America’s leader in e-commerce

MercadoLibre is Latin America’s top e-commerce giant, similar to AmazonAlthough it’s not that young anymore, it operates in a market that’s exploding, and its e-commerce business is still seeing extraordinary growth. Gross merchandise volume (GMV) in the fourth quarter of 2023 increased 79% year-over-year (currency neutral) by a quarter.

Like Amazon, MercacoLibre has also expanded into new businesses and is growing faster. It has a huge financial technology business and focuses on digital payments. Its total payment volume (TPV) increased by 153% year-on-year in the fourth quarter. There are incredible opportunities for off-platform TPVs, i.e. payments that do not take place in their own markets. Off-platform TPV surged 182% in the fourth quarter.

MercadoLibre also operates a fairly new credit business as part of the fintech sector. It is a profitable business that provides the company with large amounts of cash to fund other ventures and invest to earn interest income. The credit portfolio grew 33% in the fourth quarter compared with the same period last year.

The company’s total revenue increased 83% year over year in the quarter. Net income was negatively impacted by tax obligations in the fourth quarter, but MercadoLibre remained reliably profitable, with a profit of $165 million in the fourth quarter.

MercadoLibre has been a public company since 2007 and has never split its stock. It has gained more than 5,000% in its lifetime and is trading at $1,540 today. Reaching four digits would typically lead to a stock split, but MercadoLibre has been keeping the company’s stock essentially flat so far this year, falling after a fourth-quarter report and lower profits.

Contrary to the other stock split reasons mentioned above, a stock split could spark greater interest in MercadoLibre stock and signal management’s confidence in the future. Regardless, this is a great opportunity for investors to buy before MercadoLibre stock starts climbing again.

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John Mackey is the former CEO of Amazon subsidiary Whole Foods Market and a board member of The Motley Fool. Jennifer Sebill Have a job at MercadoLibre. The Motley Fool has positions and recommendations at Amazon, Chipotle Mexican Grill, Costco Wholesale, MercadoLibre, and Walmart. The Motley Fool has positions and recommendations at Amazon, Chipotle Mexican Grill, Costco Wholesale, MercadoLibre, and Walmart. disclosure policy.

Stock-split fever is sweeping the market again as Walmart and Chipotle split: These two top stocks could follow suit Originally published by The Motley Fool

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