Many popular technology stocks have split their shares over the past two years. Stock splits do not fundamentally make a stock cheaper, as they merely cut one stock into smaller pieces to reduce its trading price.
Still, stock splits generate a lot of media buzz and attract smaller investors who don’t want to pay hundreds or thousands of dollars for a single share of a popular company. Stock splits also make it cheaper to trade options because a single contract is still tied to 100 shares, and they allow companies to offer their employees more flexible stock-based compensation plans.
Therefore, investors should still pay attention to which hot tech stocks could split in the future. I think these three companies are ripe for a stock split: MercadoLibre (NASDAQ: MELI), ASML (NASDAQ: ASML)And Salesforce (NYSE: CRM).
1. MercadoLibre
MercadoLibre, the largest e-commerce company in Latin America, went public in 2007 at $18 and now trades at about $2,040. But even after turning a $1,000 investment into more than $113,000, it still never split its high-flying shares.
From 2007 to 2023, MercadoLibre’s revenue grew at a compound annual growth rate (CAGR) of 38%. That robust growth was driven by its expansion into 18 countries, rising internet penetration in Latin America and the tenacity of the Mercado Pago ecosystem of digital payment and fintech services. It also built a vast logistics network ahead of many of its domestic and foreign competitors, and profitability improved as economies of scale manifested and costs fell.
From 2023 to 2026, analysts expect MercadoLibre’s revenue to grow at a CAGR of 27%, while earnings per share (EPS) will rise at a CAGR of 51%. Those are incredible growth figures for a stock that trades at 41 times next year’s earnings.
MercadoLibre’s shares could soar much higher on their own in the coming years, but a stock split could attract a new generation of retail investors who were initially scared away by its four-digit trading price.
2. ASML
ASML, the world’s largest manufacturer of lithography systems for semiconductor production, has completed four stock splits since its IPO in 1995. In 1997 and 1998, the company conducted two 2-for-1 stock splits, a 3-for-1 split in 2000, and a 3-for-1 stock split. 8-for-9 reverse split aimed at optimizing the capital structure in 2007. of the initial public offering (IPO) of $1.85 has skyrocketed to $834 today, so a $1,000 investment would have grown to over $450,000.
From 1996 to 2023, ASML’s revenue grew at a CAGR of 15%. The growth was initially driven by market dominance for deep ultraviolet (DUV) lithography systems, which are used to optically etch circuit patterns onto silicon wafers. It then became the only manufacturer of extreme ultraviolet (EUV) lithography systems, which are needed to produce the world’s smallest and densest chips. As a result, all the most advanced chip foundries in the world are included Taiwanese semiconductor manufacturing companySamsung, and Intel — Using ASML’s EUV systems to produce their most advanced chips.
From 2023 to 2026, analysts expect ASML’s revenue to grow at a CAGR of 13% and earnings per share to grow at a CAGR of 19%. Stricter export restrictions are limiting sales of advanced systems to China, but the gradual rollout of next-generation high-NA EUV systems should offset those pressures. The stock still seems fairly valued at 26 times next year’s earnings, but a split could bring its trading price back into double digits and make it more attractive to new investors.
3.Salesforce
Salesforce, the world’s largest provider of cloud-based CRM (Customer Relationship Management) services, went public in 2004 at a split price of $2.75 per share. At the current price of $290, a $1,000 investment in the IPO would be worth more. than $105,000 today. In 2013, it underwent a 4-for-1 single stock split.
From fiscal 2004 to fiscal 2024 (which ended in January 2024), Salesforce’s revenues grew at a CAGR of 35%. It grew rapidly as more companies replaced their desktop-based CRM software with cloud-based CRM services. It also expanded its cloud ecosystem to include more marketing, analytics, e-commerce and collaboration services.
However, Salesforce’s growth has slowed in recent years as the CRM market matured and faced tougher macroeconomic and competitive headwinds. Pressure from activists also forced the company to focus on cost cutting rather than making major acquisitions to increase revenues inorganically. From fiscal 2024 to fiscal 2027, analysts expect revenue to grow only at a CAGR of 9% – but they expect earnings per share to rise at a CAGR of 27% as spending is streamlined.
Salesforce stock looks historically cheap at 26 times forward-adjusted earnings, and even paid its first dividend earlier this year. But a split could make the stock, which has fallen about 3% in the past six months, a bit more attractive.
Should you invest $1,000 in MercadoLibre now?
Consider the following before purchasing shares in MercadoLibre:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and MercadoLibre wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $826,069!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns October 14, 2024
Leo Sun has positions in ASML and MercadoLibre. The Motley Fool holds and recommends ASML, MercadoLibre, Salesforce, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: Short November 2024 $24 Calls on Intel. The Motley Fool has a disclosure policy.
Stock-Split Watch: 3 Tech Stocks That Look Ready to Split was originally published by The Motley Fool
