One of the more intriguing developments for investors in recent years has been the return to prominence of stock splits. This action is generally taken as the result of years of strong business performance, thereby causing a commensurate stock price increase. While stock splits don’t change the inherent value of a company, the primary motive cited by companies who enact them is the desire to keep their shares affordable for less affluent investors.
A look back at the past couple of years highlights a number of investor-favorite companies that have conducted stock splits. These include:
Amazon: 20-for-1 split June 3, 2022
DexCom: 4-for-1 split June 10, 2022
Shopify: 10-for-1 split June 28, 2022
Alphabet: 20-for-1 split July 15, 2022
Tesla: 3-for-1 split Aug. 24, 2022
Palo Alto Networks: 3-for-1 split Sept. 13, 2022
Monster Beverage: 2-for-1 split March 27, 2023
Celsius Holdings: 3-for-1 split Nov. 15, 2023
Some believe the practice is unnecessary. But as this list illustrates, some of the world’s preeminent businesses still think there’s value in keeping their stock price within reach of the average investor.
The market recovery over the past year has pushed some stocks to within striking distance of new all-time highs, providing justification for a more reasonable stock price. While this is all conjecture on my part, here’s my list of three stocks that could conduct stock splits in 2024.
Image source: Getty Images.
1. Chipotle Mexican Grill
Even the worst economic conditions since 2008 couldn’t dampen the desire for Chipotle Mexican Grill (NYSE: CMG). Going back to the beginning of 2022, the company generated positive comparable store sales that increased from mid-single digits to low double-digits in each and every quarter. Given the inflationary pressures that faced consumers, that’s a remarkable achievement.
Most recently, third-quarter revenue grew more than 11% to $2.5 billion, while diluted earnings per share climbed 23% to $11.32. The results were fueled by strong restaurant-level operating margins and comparable sales that climbed 5%.
So, what drove this relentless growth? Chipotle’s digital strategy is a big hit with customers — its rewards program surpassed 35 million reward members in the first half of 2023. As a result, digital orders continue to grow faster than in-restaurant sales, representing 37% of the company’s total food and beverage sales in Q3.
Another contributor has been the rousing success of Chipotlanes, drive-thrus dedicated to picking up prepaid mobile orders. Chipotle just opened its 600th Chipotlane location, as they fuel higher sales and boost profit margins.
Taken together, Chipotle’s integrated growth strategy has paid off in droves, and its stock price sits just 1% off its all-time high of roughly $2,348 (as of Thursday’s market close). Given its high and rising share price and consistently strong growth, I wouldn’t be surprised if there’s a stock split in Chipotle’s future, which would mark its first split ever.
2. Booking Holdings
In many ways, 2023 was a record-setting year for travel. On the Sunday after Thanksgiving, nearly 3 million passengers cleared Transportation Security Administration (TSA) checkpoints, marking the busiest air travel day in U.S. history. Ticket sales for the year fell just short of a record, topping $95.3 billion, just shy of the $97.4 billion reported in 2019.
All that travel has been a boon to Booking Holdings (NASDAQ: BKNG), which set a number of records itself. In the third quarter, the company generated revenue that grew 21% to $7.3 billion, while earnings per share soared 66% to $69.80. CEO Glenn Fogel said, “We are pleased to report record quarterly room nights, gross bookings, revenue, and net income driven by a strong summer travel season.”
What followed was a stampede of upgrades and price target increases by Wall Street, which drove the stock even higher. Mizuho recently raised its price target to a Street-high $4,250, implying potential gains of more than 20% compared to Thursday’s closing price. The analyst cited increasing consumer confidence and slowing inflation as catalysts to drive future travel.
Travel growth is expected to moderate in 2024 after near-record growth this year, which would mark a return to historical norms. But growth is still expected to be robust. This all comes as Booking Holdings stock sits less than 1% off its all-time high, reached late last year. Its enviable financial performance has pushed the stock to about $3,529, a price that’s ripe for a stock split.
MercadoLibre (NASDAQ: MELI) may not be a household name, unless you live in Latin America. The company boasts the leading e-commerce and fintech platform in the region. MercadoLibre continues to make inroads in an area with a population that’s twice the size of the U.S., which has helped fuel its remarkable growth.
In the third quarter, MercadoLibre’s net revenue climbed 69% to $3.8 billion, while earnings per share of $7.18 surged 179%. What makes this all the more impressive is that it was on top of a record-setting performance in 2022.
The company’s integrated offerings represent a compelling value proposition. MercadoLibre has been compared to eBay, Amazon, Shopify, and PayPal. It’s taken the best elements of each company and tweaked it to the Latin American marketplace.
Of special note is Mercado Pago, the company’s digital payment system, which outgrew the company’s e-commerce platform and is now a staple at a growing number of online merchants and brick-and-mortar retailers. In the third quarter, total payment volume of $47.3 billion grew 121% year over year in local currencies, while off-platform transactions grew even faster.
The company’s resilient growth in the face of headwinds has buoyed its stock, which has nearly doubled since early 2023. The company boasts a share price of roughly $1,662 — a price that’s just begging for its first-ever stock split.
Value is what you get
Given the impressive growth and corresponding stock price gains of this trio, you’d be tempted to think they might have frothy valuations. But that simply isn’t the case. Each stock trades at a forward price/earnings-to-growth ratio (PEG ratio) of less than 1, the standard for an underpriced stock.
Furthermore, each of these stocks has outperformed the broader market by a wide margin over the past five years. This consistent track record of growth helps illustrate why all three of these stocks are still buys.
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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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Booking Holdings, Chipotle Mexican Grill, MercadoLibre, Monster Beverage, PayPal, Shopify, and Tesla and has the following options: long January 2024 $95 calls on PayPal. The Motley Fool has positions in and recommends Alphabet, Amazon, Booking Holdings, Celsius, Chipotle Mexican Grill, MercadoLibre, Monster Beverage, Palo Alto Networks, PayPal, Shopify, and Tesla. The Motley Fool recommends DexCom and eBay and recommends the following options: short January 2024 $45 calls on eBay and short March 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
Stock-Split Watch: 3 Supercharged Growth Stocks That Could Split Their Shares in 2024 was originally published by The Motley Fool