Would you believe me if I told you that a company that makes burritos and tasty Mexican-inspired bowls has outperformed the S&P 500 over the last 10 years?
Shares of fast-casual restaurant chain Chipotle Mexican Grill (CMG +2.30%) have absolutely trounced the broader market over the last decade.
After soaring 275% over the last 10 years, Chipotle finally decided to implement a 50-for-1 stock split last month. Although stock splits do not inherently change the market capitalization of a company, the lower share price is often perceived by investors as more affordable, thereby opening up trading activity to a broader base.
Let's take a look at how Chipotle stock has been moving since the split, and assess if now is a good time for investors to get in on the action.
NYSE: CMG
Key Data Points
How has Chipotle stock performed since the split?
Stock splits have a tendency to garner outsize attention from investors. In particular, momentum investors may enter a stock-split candidate right around the time of the split. This can cause the share price to rise sharply, only to witness a sell-off as day traders quickly exit their positions and book a quick profit.
The chart below illustrates this point nicely as it relates to Chipotle.
Chipotle's stock split is depicted in the chart above with the purple circle with the letter "S" in the middle.
You can see that just days before the split, shares of Chipotle suddenly rose -- hitting a price of $68.55. For what it's worth, that level was an all-time high for Chipotle stock.
Yet shortly thereafter, the stock experienced a brief sell-off prior the split and has subsequently continued to fall since the split went into effect on June 26.
While this might seem like Chipotle has lost some of its allure, I'd caution investors from such thinking.
Image source: Getty Images.
A sizzling operation
One of the most important key performance indicators in the restaurant industry is same-store sales. Same-store sales is a measurement of how growth is trending in existing storefronts. This is important to analyze because it sheds light on the profitability of each location, and whether or not expansion opportunities are attainable.
The table below breaks down Chipotle's same-store sales over the last 12 months.
| Metric | Q3 2023 | Q4 2023 | Q1 2024 | Q2 2024 |
|---|---|---|---|---|
|
Same-store sales growth | 5% |
8.4% | 7% | 11.1% |
Data source: Chipotle investor relations.
Seeing Chipotle's same-store sales consistently accelerate is an encouraging sign. Moreover, I think it's particularly impressive given some of the pressures the macroeconomy has endured over the last couple of years.
Despite nagging inflation and tighter consumer discretionary controls, Chipotle has found ways to continue resonating with its customers and build loyal brand equity.
While same-store sales is an important metric to look at, it's only one piece to the puzzle. The bigger idea behind accelerating same-store sales is that it helps Chipotle achieve better unit economics from a margin perspective.
CMG Gross Profit Margin (Quarterly) data by YCharts
As depicted above, Chipotle has been able to recognize significant growth in its operating income and gross profit margin over the last several years.
This is a great sign, as margin expansion and growing profitability allow Chipotle to invest in new, innovative products and services to help make its restaurants even more efficient and build further brand loyalty.
A premium valuation well worth the price
One of the challenging aspects when analyzing Chipotle is its valuation. As seen in the trading patterns above, Chipotle is a growth stock and can experience outsize volatility.
CMG PE Ratio data by YCharts
Moreover, you can see in the chart above that the stock has witnessed particular expansion in its valuation multiples in just the last year. With a price-to-earnings (P/E) multiple of 48.9, shares of Chipotle are indeed a bit pricey.
With that said, the recent sell-off since the split presents an interesting buying opportunity right now.
Furthermore, considering Chipotle showcased yet again in its second-quarter earnings that its business is thriving, I see the current dip in Chipotle stock as a great opportunity for long-term investors to take advantage of some depressed price action and scoop up some shares.
