A common misconception in investing is that a high share price equates to an expensive stock. Valuation, a measure of a stock’s cost, is based on factors other than the share price. Mainly, the number of shares attached to a company’s market value makes a big difference to the per-share price calculation.
Despite this, it’s understandable that some investors might shy away from stocks with triple- or quadruple-digit share prices, especially those without access to fractional shares.
This is one reason companies decide to do stock splits. A stock split has no material impact on the value of an investor’s shares. Instead, it allows for more investors to feel comfortable buying the lower-priced shares.
With share prices approaching $1,000, let’s explore two consumer stocks that might be prime candidates for a potential stock split.
1. Costco
Bulk retailer Costco (NASDAQ: COST) has been on an impressive run over the last three years. The stock is up 84% over that time frame, and shares are currently trading for $801.
There’s been no news of a stock split, but if the company did decide to go in that direction, it wouldn’t be the first time. Costco has split its stock four other times over the past 34 years, most recently in 2000.
Whether or not Costco decides to split its stock again, the company has been putting up impressive results recently. In Costco’s third quarter of 2024 (ending in May), the company reported year-over-year revenue growth of 9%. This was driven by comparable-store sales growth of 6.6% and comparable traffic growth of 6.1%. E-commerce comparable-sales growth was even higher, at 21%.
Much of this growth is driven by Costco’s membership model. In Q3, Costco reported a total of 75 million paid memberships, up 8% year over year. It’s clear members enjoy the value they’re getting because Costco’s worldwide membership renewal rate is 91%. Costco also recently announced it was raising the membership fee by $5 beginning in September, which should help to ensure these strong results moving forward.
2. MercadoLibre
Latin American e-commerce and fintech company MercadoLibre (NASDAQ: MELI) has not been on as impressive a run over the last three years as Costco, with shares up only 12% over that time frame. However, the stock has easily outpaced the return of the S&P 500 over the past five and 10 years. Regardless, MercadoLibre’s stock trades today for $1,774, and the company has never split its stock.
MercadoLibre announced its Q2 2024 earnings recently, and while there was no announcement of a stock split, the financial results demonstrated why the company has been such a winning investment over the long term. Revenue increased by 42% year over year, driven by both the company’s marketplace and fintech segments, which grew by 53% and 28%, respectively.
The company is seeing growth in its users on both its e-commerce marketplace and within its fintech offerings. Unique active buyers on the marketplace increased by 19%, and the number of fintech monthly active users grew by 37%. This demonstrates the growth opportunity that remains for MercadoLibre, as it provides important services to a rapidly developing part of the world.
Are these two stocks a buy, with or without a stock split?
Whether or not these two companies decide to split their stock, both are wonderful businesses that are well worth owning. Costco’s membership model drives consistent performance, and MercadoLibre continues to impress in an important and growing region of the world. A stock split might make the companies easier to buy for some investors, but the fundamentals of these businesses are the most important reason to own shares.
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Jeff Santoro has positions in Costco Wholesale and MercadoLibre. The Motley Fool has positions in and recommends Costco Wholesale and MercadoLibre. The Motley Fool has a disclosure policy.
Stock-Split Watch: 2 Consumer Stocks That Look Ready to Split was originally published by The Motley Fool
Source: finance.yahoo.com