Since its 2006 IPO, Chipotle Mexican Grill (NYSE: CMG) has been one of the best-performing stocks on the market, but it has never split. Change is coming. The burrito roller said after hours on Tuesday that its board of directors had approved a 50-for-1 stock split, one of the largest in New York Stock Exchange history.
CFO Jack Hartung said the stock split "will make our stock more accessible to employees as well as a broader range of investors," adding that revenue, profits, and growth have driven the stock to an all-time high. Chipotle also announced a one-time equity incentive for restaurant general managers and crew members with over 20 years of service.
Chipotle's shares rose 5% after hours, showing investor approval of the stock split. A stock split doesn't impact the stock's fundamentals, so investors should be aware. Splits the pie into more pieces. Investors' stakes and claim to Chipotle's profits will remain the same.
A stock split may cause stocks to outperform, but that's not always the case. Stock splits occur when a company is doing well and the board of directors approves when a stock rises enough. Stock splits are milestones for stock growth, which might attract momentum investors.
Chipotle's stock split appears overdue. It was one among the highest-priced S&P 500 stocks when the news was disclosed, nearing $3,000. If its present price holds, a 50-for-1 split will lower its price to $60, below many of its rivals.
Should I buy Chipotle stock? Chipotle has been a great business and stock since its E. coli epidemic, except for a few years. The company pioneered fast-casual restaurants and has inspired several imitators with varied cuisines. Chipotle has a great business model, especially after adapting to the digital age, and customers adore its product.
Chipotle has high profit margins and grows through additional stores and same-store sales. The average Chipotle location earns about $3 million yearly, which is among the greatest in the fast food market.
Given the business's strength, the company remains an excellent choice for long-term investors, but the present valuation should moderate their expectations for near-term growth, since the stock's 44% rise over the last six months will be hard to duplicate.
Chipotle investors who have profited from the stock's recent increases may choose to diversify into other potential restaurant businesses like Cava Group, Sweetgreen, or Kura Sushi, which use Chipotle's business model. The stock split may increase interest in Chipotle stock, but buying it for that reason is foolish. Instead, investors should focus on Chipotle's potential long-term prospects.
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