The past few years have brought a global pandemic, the worst inflation in 40 years, and the biggest stock market downturn in more than a decade. Another prominent notation on investor lists? A return to stock splits. Last year alone, a number of high-profile companies split their shares. These included:
- Amazon implemented a 20-for-1 split payable June 3.
- DexCom had a 4-for-1 split payable June 10.
- Shopify enacted a 10-for-1 split payable June 28.
- Alphabet completed a 20-for-1 split payable July 15.
- Tesla finished a 3-for-1 split payable Aug. 24.
- Palo Alto Networks executed a 3-for-1 split payable Sept. 13.
Given the current macroeconomic climate, investors might be tempted to believe that there simply wouldn't be any need for stock splits over the coming year, particularly since they don't change the underlying value or performance of the company.
Surprisingly, however, there are still a number of stocks with prices high enough to justify making them just a bit lower, allowing them to be more affordable for the average investor. Let's look at three.
Image source: Getty Images.
1. Booking Holdings
It's difficult to get a read on the outlook for travel. Many people hunkered down during the pandemic, and so even as macroeconomic headwinds persist, they are now taking to the highways and byways.
All that pent-up demand has helped bring Booking Holdings (BKNG +0.60%) back from the brink. After losing more than one-third of its value last year, the stock is less than 3% off its peak, and looks ready to run higher.
The company is home to some of the most recognizable brands in travel, including Booking.com, Priceline, Agoda, Rentalcars.com, Kayak, OpenTable, and many more. Booking Holdings continues to expand into new verticals beyond accommodations -- such as flight offerings -- and continues to improve its digital strategy and the draw and functionality of its app.
NASDAQ: BKNG
Key Data Points
After a dearth of travel, demand has returned in abundance, and Booking Holdings stands ready to serve. Room nights continue to grow at a brisk pace. The company booked nearly 900 million room-nights in 2022, an increase of 52%, and is expected to surpass pre-pandemic levels this year. Fourth-quarter revenue of $4 billion grew 36%, while net income of $1.2 billion doubled.
The company's impressive financial performance has its stock at $2,630, near an all-time high, putting it near the top of the list for a potential split.
2. Chipotle Mexican Grill
Even with numerous headwinds, Chipotle Mexican Grill (CMG 0.17%) has been able to succeed, while so many other restaurant stocks have stumbled. The burrito purveyor has honed its digital strategy to perfection over the past few years, with more than 30 million rewards members. The result has been digital orders growing faster than in-restaurant sales, accounting for 39% of the company's total food and beverage revenue last year.
Furthermore, the addition of Chipotlanes -- drive-thru lines for picking up mobile orders that are already paid for -- has been a game changer for the company. Chipotle now has more than 500 Chipotlane locations, which boast significantly higher sales and profit margins.
NYSE: CMG
Key Data Points
This combination of strategies has helped the company maintain its growth, even in the face of headwinds. Total revenue grew more than 14% to $8.6 billion last year, while diluted earnings per share of $32.04 surged 40%.
As a result, Chipotle's stock price currently hovers just 12% off its all-time high at $1,717 as of this writing. With a high price and strong growth, don't be surprised if we see a stock split in Chipotle's future -- something the company has never done before.
3. MercadoLibre
While many e-commerce platforms have experienced drastically slowing sales in response to economic headwinds, MercadoLibre (MELI 1.24%) has been much less susceptible than many of its peers. The company's leading combination of digital retail and fintech has insulated it from the increasingly difficult macro environment, helping the company thrive even as others have suffered.
MercadoLibre surpassed a number of milestones in 2022: processing $100 billion in payments, booking more than $10 billion in revenue, shipping more than 1 billion items via its logistics and fulfillment network, and generating more than $1 billion in operating income. All of these occurred for the first time in the company's history.
NASDAQ: MELI
Key Data Points
Mercado Pago, the company's digital payment system, became so popular, it expanded beyond its e-commerce platform to other websites and brick-and-mortar retailers. In the fourth quarter, total payment volume (TPV) grew 80% year over year in local currencies, while off-platform TPV surged 121%, surpassing $25 billion -- marking the fifth consecutive quarter of triple-digit year-over-year growth. This helped drive total revenue up 57% in local currencies to more than $3 billion. The company is also profitable.
MercadoLibre's growth over the past three years has been stunning: Revenue has surged 241%, while net income soared 195%. Impressive growth has backstopped its share price, which has gained 143% during the same period, resulting in a stock price of roughly $1,296 as of Thursday's market close -- a price that's ripe for its first-ever stock split.
Data by YCharts.
Is the price right?
An important addendum: Each of these stocks has outperformed the market indexes over the past three years, but none of them are exactly cheap, though they're valuations are historically low. MercadoLibre, Booking Holdings, and Chipotle are each selling for roughly 4 times next year's sales, when most experts agree a reasonable price-to-sales ratio is between 1 and 2.
But again -- and as shown in the above chart -- each of these stocks has far outpaced the performance of the broader markets over the past three years, illustrating that they deserve a premium valuation.
