I said Chipotle could split its stock in 2024. The corporation approved a 50-for-1 split two months later. Shares rose 2% after the announcement, presumably due to investor excitement. Stock splits lower share prices and highlight strong companies.
Since stock splits are only needed after significant price appreciation, which seldom occurs in companies without a competitive edge, Fresh ingredients and properly farmed meat have helped Chipotle build brand authority. This led to great financial outcomes and share price rise. Over the past three years, revenue grew 18% yearly and stock value doubled.
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However, the stock split is irrelevant. Significant and persistent price appreciation shows investors the company is performing well. Over the past seven years, ServiceNow (NYSE: NOW) and MercadoLibre (NASDAQ: MELI) shares have risen 780% and 575%, respectively. The gains make the firms stock split candidates, but both stocks are worth buying nonetheless.
1. ServiceNow ServiceNow automates and digitizes workflows. Its platform addresses technology workflows like IT service management, consumer workflows like customer support, employee workflows like human resources, and creator workflows like application development. ServiceNow improves business efficiency by replacing outdated and manual systems with integrated software that streamlines departmental work in those categories.
ServiceNow dominates various software markets due to its own technology. Although best recognized for its IT service management software, Gartner says the business dominates the markets for IT operations management and AI for IT operations software. Forrester Research ranks ServiceNow on top in customer service and digital process automation.
ServiceNow surpassed top and bottom-line estimates in the fourth quarter. Total revenue rose 26% to $2.4 billion, the fourth straight quarter of sequential growth. Non-GAAP net income rose 36% to $3.11 per diluted share. In Q4, the corporation reported 99% renewals, up from 98% the year before. CEO Bill McDermott attributed the good quarter to strong digital transformation demand driven by AI.
ServiceNow has long offered predictive analytics, virtual agents, and intelligent search. The startup also uses generative AI to create content, summarize data, and automate tasks. ServiceNow believes it is "uniquely positioned to bring the full potential of generative AI to the enterprise." 85% of Fortune 500 organizations utilize its products.
Wall Street predicts 20% yearly sales growth for the next five years. Its 17.4 times revenue valuation seems reasonable given that consensus projection. Whether ServiceNow announces a stock split or not, five-year investors should buy a tiny position now.
2.LibreMarket As the "Amazon of Latin America," MercadoLibre is known for its e-commerce supremacy and ecosystem of supporting services that bolster its economic moat. MercadoLibre is Latin America's most-visited and largest online marketplace by sales. Morgan Stanley says its market share exceeds the next five competitors combined.
That size gives you an edge. Merchants naturally prefer the platform most popular with consumers, and vice versa, creating a significant network effect. However, MercadoLibre has built a supporting service ecosystem to reinforce its moat. Well-established in payments, financing, shipping, and advertising, it offers solutions. For instance, MercadoLibre has the fastest and largest delivery network in its key regions.
Investors predict strong fourth-quarter results from MercadoLibre. Revenue climbed 42% to $4.2 billion, driven by sequential acceleration in commerce sales (48%) and fintech sales (38%). One-time tax dispute charges kept GAAP net income steady at $165 million. Without such charges, net income rose 166% to $383 million.
Future digitization of the Latin American economy should benefit the company. eMarketer says, "Latin America has transformed into a flourishing hub of digital innovation thanks to widespread internet access." MercadoLibre will benefit as more trade, payments, and advertising are done online.
Wall Street expects the company to expand revenues 20% annually over the next five years. In that context, the 5.3 times revenue valuation seems realistic. We recommend taking a small position in this multinational stock today.
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