If you invested $22 in Chipotle (CMG -0.61%) stock (the price of two burritos) at its initial public offering (IPO) in 2006, you would have $3,155 today -- a jaw-dropping return of over 14,000%. The Mexican-inspired fast-casual chain has taken the restaurant industry by storm over the last two decades, and an ambitious stock-split plan promises to reignite optimism. But does the company have what it takes to maintain its market-beating performance? Let's dig deeper to find out.
Management wants to make Chipotle stock more affordable
After more than 20 years of incredible growth, Chipotle stock has become seemingly out of reach for many people -- particularly its employees, who might be hard-pressed to afford its $3,155 price tag. To fix this problem, CFO Jack Hartung is pursuing a 50-for-1 stock split that he believes will make it easier for line workers to buy the stock and for the company to reward its top-performing managers with specific increments of equity.
Generally, stock splits don't impact company fundamentals because they make shares cheaper without influencing market cap or valuation relative to earnings. But Chipotle's stock split is part of a larger strategy that could create shareholder value over the coming years.
Management's primary goal seems to be worker retention, which can lead to more productivity and customer satisfaction. This is a key challenge because, according to The Wall Street Journal, Chipotle had a worker-turnover rate of 183% in 2023 (turnover rates above 100% mean that more than the entire workforce is replaced annually). The company is constantly losing a lot of experience and efficiency.
Management plans to use its stock split (and more stock-based compensation) to make its most valuable workers feel a sense of ownership in Chipotle's success and be less likely to leave.
How might the business perform over the next five years?
Chipotle's employees are only one side of the equation. Consumers are the other. And if first-quarter results are anything to go by, they seem happier than ever. Revenue increased by 14.1% year over year to $2.7 billion, driven by a healthy 7% jump in comparable-restaurant sales.
Image source: Getty Images.
Customers are still flocking to Chipotle despite several price hikes in the last few years, including a "substantial increase" in 2024 to offset California's minimum wage hike (although the results of that move will probably start to show in later quarters). While social media chatter may suggest otherwise, Chipotle's growth suggests consumers feel like they are still getting value at the fast-casual chain.
Over the next five years, the company can maintain a resilient position in the core U.S. market. And with its American operations looking strong, management is poised to execute its long-term growth strategy, which involves international expansion.
In April, Chipotle opened its first Middle Eastern location in Kuwait City, Kuwait, with plans to open additional locations across West Asia and Europe over the coming years. The international expansion will give Chipotle a great way to scale up its proven fast-casual strategy without relying on potentially value-destructive price hikes or oversaturation in the U.S.
Is Chipotle stock a buy?
Chipotle looks positioned for massive success over the next five years as it enjoys consistent organic growth in the U.S. market and excellent international potential in Europe and the Middle East. The upcoming stock split may be icing on the cake by helping the company keep its share price liquid and incentivize its workforce.
That said, a good company doesn't always make a good investment. And Chipotle's current valuation of 58 times forward earnings is a tough sell compared to the S&P 500 average of just 28. Long-term investors may want to wait for a lower price before buying shares.
