For moves that don’t improve the underlying strength of a company’s business, stock splits garner a lot of attention, at least when conducted by prominent corporations. In part, that’s because they make it easier for investors on a budget to purchase a single share. So when a stock starts getting too expensive, it could be a sign that the company may conduct a stock split relatively soon.
Let’s consider two stocks that have beaten the market in recent years and, some would say, are overdue for a split: MercadoLibre (MELI 0.10%) and Regeneron Pharmaceuticals (REGN -0.94%).
MercadoLibre is the leading e-commerce platform in Latin America. However, the company’s services extend far beyond e-commerce. MercadoLibre created an ecosystem that gives merchants access to all the tools they need to be successful online retailers, from payment processing and shipping solutions to the ability to create and customize an online storefront. Like many other e-commerce leaders, MercadoLibre saw its shares soar in the early days of the pandemic, only to drop substantially between 2021 and 2022 once that tailwind ended.
It’s been recovering in the past year, though. The company’s shares have outpaced the S&P 500 over the past five years. But at a share price of about $1,772 as of this writing, MercadoLibre could benefit from a stock split. It has never resorted to this move, so don’t hold your breath. Still, a split would help make shares look more affordable — perceptions matter.
Even if the company doesn’t opt to split its stock, MercadoLibre is an outstanding stock to buy, and resorting to fractional shares is fine. Besides its lead in the e-commerce market in Latin America, MercadoLibre has competitive advantages.
It benefits from the network effect since the more merchants join its ecosystem, the more attractive it becomes to consumers, and vice versa. MercadoLibre’s platform also has switching costs: Given the services it provides to merchants that help them build successful online presences, their jumping ship to a competitor carries high potential costs.
The company’s financial results have been solid:
There’s more where that came from. The e-commerce industry should continue growing for a long time, since both merchants and consumers benefit. Sellers gain access to a much broader potential customer base and eliminate some of the overhead costs of running brick-and-mortar operations; customers have more choices, all accessible from the comfort of their homes and the tips of their fingers.
MercadoLibre is a great stock to pick to profit from this long-term opportunity, whether the company opts for a stock split or not.
2. Regeneron Pharmaceuticals
Leading biotech Regeneron Pharmaceuticals has never conducted a stock split either, but with its shares approaching the $1,000 mark — they recently were trading at roughly $930 — it might be time. The drugmaker has performed well in recent years thanks to a pair of growth drivers: Eylea and Dupixent. Eylea treats wet age-related macular degeneration, while Dupixent targets eczema. Even with recent negative developments, these medicines should continue contributing meaningfully to Regeneron’s top-line growth.
The issues mostly come from Eylea, which has been battling a competing therapy named Vabysmo since early 2022. However, the U.S. Food and Drug Administration approved a high-dose formulation of Eylea late last year; among other things, that reduces the number of required doses per year for some patients without sacrificing efficacy — a significant selling point. This new approval should help Eylea remain one of Regeneron’s key assets.
Dupixent is still going strong and may be Regeneron’s most important therapy right now. However, the biotech has been branching out into exciting areas, such as gene therapies and gene editing, through collaborations with smaller biotechs. Its rich pipeline boasts 46 programs, including 11 in phase 3 studies. Over the long run, that will mean newer drugs to replace those facing stiff competition, generic or otherwise.
Regeneron’s financial results in the past few years have been inconsistent due to its COVID-19 therapies:
But overall, the company’s revenue and earnings have been on a solid upward trend. With an impeccable track record and clear innovative capabilities, Regeneron is a solid biotech stock to buy, stock split or no stock split.