Stock splits attract a lot of attention among investors.
While they don’t change the fundamentals of a stock, they do serve as a signal from management that it expects the stock to continue rising. That’s because stock splits represent milestones in a stock’s growth, and they cheapen the price of an individual stock, making it more affordable for retail investors.
There is also some evidence that stocks perform better after a stock split. This may be due to the growth momentum of the stock that led to the split and management’s confidence that the stock will continue to rise.
Looking for the next stock split? Here are three stocks that could be next.
1. Booking reservations
Bookings Holdings (NASDAQ: BKNG) is the largest online travel agency in the world and has never had a stock split in the company’s history. However, a reverse split did occur in 2003 when it was on the brink of bankruptcy after the dotcom bubble burst.
Since then, Booking’s shares have soared, with the stock now approaching $4,000 per share, making it higher than any other U.S. stock except homebuilder NVR And Berkshire Hathaway Class A shares.
CEO Glenn Fogel recently tempered expectations of a stock split, as many other highly priced stocks have split their shares. In an interview with Barronshe responded to a question about a possible stock split: “I don’t think I want those kinds of investors.”
Fogel is not alone in thinking this way. Amazon Founder Jeff Bezos also brushed aside concerns from short-term investors, insisting he was focused on the long term. However, Amazon eventually split its shares after Bezos passed the torch to current CEO Andy Jassy.
Despite Fogel’s comments, a Booking share split appears increasingly likely as the stock price continues to rise.
2. AutoZone
AutoZone (NYSE: AZO) is also one of the most expensive stocks on the market when you look at the individual share price. Like Booking, it has been outperforming for years.
AutoZone and rival O’Reilly Automotive have long delivered extraordinary returns by opening new stores and serving a growing market for aftermarket auto parts, especially as the average age of a vehicle on the road now exceeds 12 years.
AutoZone stock is now trading at over $3,000 per share. The company hasn’t split its stock since 1994, and since then the stock has risen about 42,000%.
Auto parts stocks have also risen steadily over the past five years, despite the volatile market, demonstrating the strength of the recession-resistant business model.
The company hasn’t announced plans for a stock split, but it would be wise to do so, especially since the stock appears well-positioned to continue rising.
3. Free Market
Finally, Free Market (NASDAQ: MELI) also seems like a good candidate for a stock split. The Latin American e-commerce leader just crossed the $2,000 per share mark and, like the other stocks on the list, has been a consistent winner on the stock market.
MercadoLibre has grown over the years by expanding its operations into a third-party marketplace, a digital payments network, logistics services and a lending company.
While MercadoLibre has appeared to be eligible for a stock split for some time now based on its share price, which has been above $1,000 for most of the past five years, the company has never done a stock split in its history (dating back to its 2007 IPO).
MercadoLibre has yet to comment on a stock split, but it seems likely that it will happen if the stock continues to rise. The company is still growing rapidly and margins are expanding, making the stock poised for more gains.
Don’t be surprised if MercadoLibre splits its shares in the coming years, or perhaps even sooner.
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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. Jeremy Bowman has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon, Berkshire Hathaway, Booking Holdings, MercadoLibre and NVR. The Motley Fool has a disclosure policy.
Stock Split Watch: 3 Top Stocks That Look Poised to Split was originally published by The Motley Fool
