Chipotle (NYSE: CMG) has cemented its status as one of the most prominent companies globally, earning accolades for its commitment to sustainability and innovative social media strategies. Its inclusion in the Time 100 list of Most Influential Companies underscores its significant impact beyond just the culinary realm.
The company’s remarkable performance isn’t limited to its culinary delights; it’s also reflected in its soaring stock price. Over the past year alone, Chipotle stock has surged by an impressive 74%, demonstrating its resilience and attractiveness to investors. However, the real testament to its success lies in its long-term trajectory since its IPO in early 2006. Investors who had the foresight to invest in Chipotle at its IPO price of $22 have seen their investment skyrocket to approximately $2,798 per share—an extraordinary gain of 12,616%.
In a groundbreaking move, Chipotle recently announced plans to split its stock for the first time in its 30-year history. This unexpected revelation has sparked a renewed interest in the company and its stock, signaling confidence in its future growth prospects.
For shareholders, the announcement of a stock split may raise questions about its implications and mechanics. A stock split involves dividing existing shares into multiple shares, effectively lowering the price per share while maintaining the total market value of the company. This move is often undertaken to make shares more accessible to a broader range of investors and increase liquidity in the stock.
While the specifics of Chipotle’s stock split plan are yet to be disclosed, investors can generally expect to receive additional shares for each share they currently own, proportionate to the split ratio determined by the company’s board of directors. This adjustment does not change the overall value of an investor’s holdings but can lead to a more favorable trading environment and potentially attract new investors.
Overall, Chipotle’s decision to split its stock reflects its confidence in its continued growth and commitment to creating value for shareholders. As the company continues to expand its footprint and innovate within the restaurant industry, investors eagerly await further details regarding the stock split and its potential impact on their investment portfolios.
The stock split details
Chipotle’s management has approved a 50-for-1 stock split, described as one of the largest in New York Stock Exchange history.
The stock split requires approval from Chipotle’s shareholders at the company’s annual meeting set for June 6, 2024.
The stock split will become effective after the market closes on June 25, 2024.
Shareholders on record as of June 18, 2024, will be entitled to receive additional shares resulting from the stock split.
For every one share of Chipotle stock owned, shareholders will receive an additional 49 shares. Thus, each shareholder will hold a total of 50 shares after the split.
The newly split shares will commence trading on a split-adjusted basis when the market opens on June 26, 2024. However, the timing may vary across different brokerages, and it might take a few days for the new shares to reflect in shareholders’ accounts.
Pre-split, Chipotle’s stock is trading at approximately $2,800 per share. Post-split, each share will have a value of $56, assuming no change in the company’s overall market value. Consequently, shareholders’ ownership in Chipotle will be divided into 50 shares, each priced at $56.
Is a stock split a good thing?
As illustrated in the example above, the total value of shares remains unchanged after a stock split. Whether an investor holds one share worth $2,800 or 50 shares worth $56 each, the total investment value remains the same. This concept can be likened to a pizza analogy: slicing a pizza into more pieces doesn’t change the total amount of pizza one has. Similarly, stockholders simply have a greater quantity of shares, albeit at a lower price per share, after a split.
However, some argue that investor psychology plays a role in the aftermath of a stock split. Leading up to the split, there’s often heightened excitement among investors, which can temporarily drive up the share price as individuals seek to capitalize on the impending split. The lower price per share post-split may also make the stock more attractive to individual investors. Yet, this surge in demand is typically short-lived.
Ultimately, the long-term performance of the company—its business operations, financial results, and growth prospects—will be the primary drivers of the stock’s trajectory, rather than the mechanics of a stock split.
Is Chipotle stock a buy now?
While the upcoming stock split alone may not be the sole reason to consider investing in Chipotle (NYSE: CMG), there are numerous other compelling factors to support an investment in this fast-casual restaurant chain. Chipotle’s recent financial report provides ample evidence of its strength and growth potential.
In 2023, Chipotle achieved impressive results, with revenue reaching $9.9 billion, marking a 14% increase from the previous year. Diluted earnings per share (EPS) also surged by 38% to $44.34, demonstrating significant profitability gains. Notably, the fact that EPS growth is outpacing revenue growth is indicative of Chipotle’s scale and operational leverage, resulting in more profits flowing to the bottom line.
Furthermore, Chipotle’s comparable restaurant sales (comps) soared by 7.9%, driven by a 5% increase in transactions and a 2.9% rise in average check size. This growth is particularly remarkable considering Chipotle’s market capitalization of approximately $77 billion.
The success of Chipotle’s Chipotlane strategy has been a major contributor to its positive performance. These drive-thru lanes, dedicated to fulfilling prepaid mobile orders, have proven to boost sales and enhance profit margins. Chipotle ended 2023 with 811 Chipotlanes and plans to add up to 200 more in 2024.
Additionally, Chipotle’s digital strategy has played a significant role in driving growth. The company’s rewards program attracted over 36 million members in 2023, representing a 14% increase. This has led to digital orders growing faster than in-restaurant sales, accounting for 37% of total food and beverage revenue in 2024.
While the stock split may be an exciting development, investors should recognize that Chipotle’s track record of strong execution, impressive share price gains, and robust performance across various metrics make it a compelling long-term investment opportunity.