Stock splits are back with Wal-Mart and Chipotle: two top stocks that could follow suit.

The market loves a good stock split. When a company decides to do a stock split, it reflects the success of the company and shows that management is confident in the future of the company. In other words, it is almost always the top stocks with strong performance that undergo stock splits.

The two most recent stock splits in the market areWal-Martrespond in singingChipotle Mexican Grill).Wal-MartA 3-for-1 stock split was effected in February, and theMexican GrillLast week, the company announced a huge 50-for-1 stock split. Both stocks have outperformed Big Pan this year.

Will other stocks follow?Costco Wholesalefirms(Costco) Wholesale ) (NASDAQ: COST)(math.) andMercadoLibrefirms(NASDAQ resonance code: MELI)These two stocks look ready for a stock split.

Unparalleled Membership Model

Costco has been a market powerhouse for decades. It has an incredible, unrivaled retail membership model that generates customer loyalty, high traffic and strong sales. Costco charges a base membership fee of $60 per year, which is far exceeded by the savings members realize on their annual purchases. Costco primarily sells products in bulk at higher prices, covering costs with a small margin, and generates profits through fees.

Sales growth was slow or even negative for most of last year, but this was largely due to shoppers reducing their purchases of large, expensive items. Traffic and sales were up, as were memberships.

In the second quarter of fiscal year 2024 (ended February 18), year-over-year sales increased 5.91 TP3T as comparable sales grew 5.61 TP3T and traffic grew 5.31 TP3T. earnings per share (EPS) increased from $3.30 to $3.92 per share. Memberships increased 8.41 TP3T to $84.0 million and paid family memberships increased 7.81 TP3T to $73.4 million. Renewal rates continued to be high, at 92.91 TP3T in Canada and the U.S. and 90.51 TP3T globally.

Costco has split its stock three times in the past, the last time being 24 years ago. Since then, the stock has risen nearly 15,00%, and 48% in the last year. as of this writing, it's trading at more than $700 per share.

Earlier this year, Costco Bubbles shareholders paid a $15 special dividend and will also be raising membership fees. Walmart and Chipotle both cited strong business results and continued opportunities when announcing their stock splits, as did Costco. This could also be the year it finally splits its stock.

Latin American E-Commerce Leader

MercadoLibre is one of the top e-commerce giants in Latin America, with a strong partnership withAmazonSimilarly. Though it is no longer young, the market in which it operates is exploding, and its e-commerce business continues to grow exceptionally well. gross merchandise volume (GMV) grew 79% year-on-year in the fourth quarter of 2023 (rate-neutral).

Like Amazon, MercacoLibre has ventured into new business and is growing even faster. It has a large fintech business focused on digital payments, and its total payment volume (TPV) grew 1,531 TP3T year-over-year in Q4. it has an incredible opportunity in off-platform TPV (i.e., payments that aren't made in its own marketplace). In the fourth quarter, off-platform TPV grew by 1,821 TP3T.

As part of its fintech business, MercadoLibre also operates a relatively new credit business. This is a lucrative business that provides the company with a significant amount of cash to fund other businesses and investments for interest income. In the fourth quarter, the credit facility grew 33% year-over-year.

Aggregate revenues for the quarter were up $83% year-over-year. fourth quarter net income was negatively impacted by tax liabilities, but MercadoLibre remained steadily profitable with fourth quarter net income of $165 million.

MercadoLibre has been a publicly traded company since 2007 and has never split its stock. Its stock price has risen more than 5,000% over its lifetime and is currently trading at $1,540. A four-figure share price usually leads to a stock split, but MercadoLibre has been at this level for some time. So far this year, its shares have been essentially flat, falling after its fourth-quarter report and a drop in profits.

Unlike the other reasons for a stock split mentioned above, a stock split could generate more interest in MercadoLibre stock and show that management is confident about the future. Either way, this is a great opportunity for investors to buy MercadoLibre stock before it climbs again.

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John Mackey, former chief executive officer of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors; Jennifer Saibil owns shares of MercadoLibre; and The Motley Fool owns Amazon, The Motley Fool owns shares of Amazon, Chipotle Mexican Grill, Costco Wholesale, MercadoLibre, and Wal-Mart, and recommends Amazon, Chipotle Mexican Grill, Costco Wholesale, MercadoLibre, and Wal-Mart. The Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.

Stock Split Fever Returns With Wal-Mart and Chipotle Stock Splits: These Two Top Stocks Could Follow" was originally published by The Motley Fool.