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The market loves a good stock split. When a company decides to split its shares, it is a reflection of the company's success and also indicates management's confidence in its future. In other words, it's almost always top stocks demonstrating strong performance that go for stock splits.
The two newest stock-split stocks currently gripping the market are Walmart, whose 3-for-1 stock split went through in February, and Chipotle Mexican Grill, which announced a gargantuan 50-for-1 split last week. Both of these stocks are outpacing the broader market this year.
Will other stocks follow? Costco Wholesale (NASDAQ: COST) and MercadoLibre (NASDAQ: MELI) are two stocks that look poised for stock splits.
The unbeatable membership model
Costco has been a market-beating stock for decades. It has an incredible, unbeatable retail membership model that generates customer loyalty, high traffic, and strong sales. It charges $60 for a basic annual membership, which members more than make up for with their cost savings on their yearly purchases. Costco marks up products, which it sells mostly in bulk, with razor-thin margins to cover costs, and it makes its profits on the fees.
Sales growth was sluggish for most of last year and even headed into negative territory, but that was mostly attributable to shoppers cutting down on large, expensive items. Traffic and volume were up, as was membership.
In fiscal 2024's second quarter (ended Feb. 18), sales increased 5.9% year over year driven by a 5.6% increase in comparable sales and a 5.3% increase in traffic. Earnings per share (EPS) were up from $3.30 to $3.92. Membership fee increased 8.4% to $84 million, and paid household members increased 7.8% to $73.4 million. Renewal rates continue to be sky-high, with Canada and the U.S. at 92.9% and the global rate at 90.5%.
Costco has split its stock three times in the past, and the last time it did was 24 years ago. The stock is up almost 1,500% since then, and it's up 48% over the past year. Each share cost more than $700 as of this writing.
Costco paid a $15 special dividend to shareholders earlier this year, and it's also due for a membership fee hike. Walmart and Chipotle noted their strong performances and continued opportunities in their stock split announcements, and that applies to Costco, too. This could also be the year that it finally splits its stock.
The leader in Latin American e-commerce
MercadoLibre is the top Latin American e-commerce giant, similar to Amazon. Even though it's not so young anymore, it operates in a market that's exploding, and it's still reporting exceptional growth in its e-commerce business. Gross merchandise volume (GMV) increased 79% year over year (currency neutral) in the 2023 fourth quarter.