Chipotle (CMG +2.14%) has long been the standard bearer for the fast-casual dining it helped pioneer. The company's focus on fresh ingredients prepared daily has revolutionized the industry and made Chipotle one of the biggest successes in it. Over the past year, the stock is up an impressive 60% (as of this writing), and that's no fluke. Over the past decade, Chipotle's revenue has jumped 157%, driving its net income up 226%. This performance has fueled its surging stock price, which has gained 450%.
As a result, its stock price currently sits above $3,250 per share, putting it beyond the reach of many everyday investors -- but there's change in the air. Chipotle's long-awaited 50-for-1 stock split went into effect after the market close on Tuesday, June 25.
Let's review the details of this split and what investors can expect in the days and weeks to come.
Image source: Chipotle.
A quick review
On March 19, Chipotle management announced a 50-for-1 stock split, "one of the biggest stock splits in New York Stock Exchange (NYSE) history." The matter was subject to shareholder approval. The company subsequently secured that during its annual meeting, which was held on June 6. Chipotle noted at the time that "shareholders approved an increase in the number of authorized shares of its common stock," an important milestone on the road to the split.
The stock split process commenced after the market close on June 25, and the stock began split-adjusted trading when the market opened on June 26. Shareholders were presented with 49 additional shares of Chipotle stock for each share they previously held. For each share of stock, at the current price of $3,250, investors should now have 50 shares priced at roughly $65 each. The timing can vary from brokerage to brokerage, so investors shouldn't be concerned if the newly minted shares don't appear immediately on the morning of June 26.
Will the stock get a "bump"?
Seasoned investors will note that a stock split doesn't affect the underlying business, but the process of a stock split generates a lot of excitement in the investing community, which is understandable. History suggests that the stocks in question tend to outperform the broader market in the year following a split.
Don't take my word for it. Data tabulated by Bank of America Global Research showed that in the 12 months following a stock split announcement, companies generated returns of 25.4%, on average, compared to gains of 11.9% for the S&P 500.
Experts suggest that the greater stock price gains aren't the result of the stock split itself, but rather the strong business and financial performance that fueled the stock price gains, which led to the split in the first place.
The study suggests that, on the heels of its stock split, Chipotle will likely continue to outpace the broader market.
NYSE: CMG
Key Data Points
What the future holds
The company's streak of impressive growth continued when it announced its first-quarter results. Chipotle generated revenue of $2.7 billion, up 14% year over year, resulting in diluted earnings per share (EPS) of $13.01, up 24%. It's always encouraging to see profits grow at a faster rate than revenue, as this signals that the company has reached the scale necessary to leverage its existing assets, sending more income to the bottom line.
Chipotle's consistent growth is the fuel that has driven its stock price higher, and it appears the company has all the pieces in place to continue its upward trajectory. For the current year, management is guiding for revenue growth in the mid- to high-single-digit range while opening roughly 300 new restaurants, with 80% equipped with a Chipotlane.
It's worth noting that the company's Chipotlane strategy has been driving growth. These dedicated mobile order pickup lanes help reduce congestion at the checkout counter, which increases both sales and profit margins. It makes sense, then, that management is leaning into this strategy.
The subject of mobile ordering is also an important growth driver for Chipotle. The company had more than 36 million rewards members last year, who tend to be among Chipotle's most reliable customers. As a result, digital orders continue to grow faster than in-restaurant sales, amounting to 37% of food and beverage revenue in 2023.
Chipotle has several dozen international locations, and it has begun to expand its global presence. Furthermore, while Chipotle had 3,479 restaurants at the end of the first quarter, management is ultimately targeting 7,000 locations in North America. This, combined with a vast international opportunity, shows why Chipotle has a long runway for growth ahead.
Finally, some investors might not find Chipotle's valuation to their taste. The stock is currently selling for 59 times forward earnings, compared to a multiple of 28 for the S&P 500. Taking a step back, however, helps provide perspective. Over the past decade, Chipotle stock is up 450%, compared to 180% for the S&P. For investors put off by the valuation, I'd suggest edging into the stock on any signs of weakness.
