In the long run, what matters most for investors is whether a stock they own rises in value. Stock splits don't contribute to fundamental growth for a company, but many investors see splits as a sign of past success and future confidence in the business prospects for a given stock. Chipotle Mexican Grill (CMG +0.87%) was a high-flying stock throughout its early high-growth years, and even though the burrito giant has fallen on tougher times lately, its share price still ranks among the most expensive stocks in the market.
Let's look more closely at Chipotle's history to see whether it's likely that the Mexican food restaurant chain is likely ever to split its stock in the future.
Why has Chipotle never done a stock split?
With most companies, a look at previous decisions to split their shares can be helpful in figuring out what will motivate a future move. Because Chipotle has never done a stock split, that method of evaluating the likelihood of future splits isn't available. What we can do, though, is look at when the issue has come up and why Chipotle has chosen not to move forward with splitting its stock.
It didn't take long for Chipotle to reach a point at which considering a stock split was an option. The company came public with an IPO price of $22 per share in 2006, but by the following year, the stock had climbed as high as $150. In mid-2007, analysts asked chief financial and development officer Jack Hartung whether a stock split might be in the cards. Hartung's response made it clear how Chipotle viewed the issue at the time:
We are not considering a stock split right now. We have a lot of things that we think can add value to our shareholders, that can add value to our customers. It really revolves more around improving our ingredients [and] restaurant design, continuing to develop great managers and crew, and we think stock splits in terms of adding any kind of value at all is way, way, way down the list.
In early 2008, the issue came up again, and Hartung was just as clear. In his words, "We don't think that [a stock split] really does anything to add to shareholder value."
Guacamole is more important than stock splits for Chipotle. Image source: Chipotle Mexican Grill.
Pushing the limits
The financial crisis of 2008 quickly made the issue of stock splits a moot point, as Chipotle shares suffered substantial declines as a result of the market's overall meltdown. Yet it didn't take long for Chipotle to bounce back, and by early 2012, the stock had hit $400 per share. Even after the growth spurt that had carried the burrito maker's stock so high began to cool off, the subsequent pullback for Chipotle quickly gave way to greater enthusiasm about its long-term prospects. After that, the stock eventually moved toward its all-time highs above $700 per share in 2015.
At no time did Chipotle reveal any intentions of splitting its shares even as their price climbed to ever-higher levels. That was consistent with what most companies were doing, choosing to let share prices rise as high as warranted without considering moves to increase small-investor access by doing a split to cut the per-share price tag for the stock.
Missed opportunity?
After that, Chipotle went into its current swoon. Multiple incidents of food-borne illness started to plague the company, and shareholders became more concerned about preserving their gains than with the idea of a stock split. Still, even after losing nearly 60% of their value over the past couple of years, Chipotle's stock is still expensive enough that many other companies would consider a split.
Yet nothing has changed to warrant a shift in Chipotle's philosophy with regard to its stock. Share splits don't add value, merely trading a smaller number of higher-priced shares for a larger number of less expensive shares. With the need to focus on winning back former customers and demonstrating a new commitment to even stronger food safety and customer satisfaction efforts, Chipotle's decision not to resort to financial engineering tactics such as a stock split is a positive rather than a negative.
Chipotle Mexican Grill has never embraced the idea of stock splits, and there's no reason to think that it ever will. Unless some new compelling reason arises to change the Mexican restaurant chain's philosophy, Chipotle shareholders shouldn't anticipate a stock split either now or in the future.
