Chipotle Mexican Grill, Inc. (CMG), on March 19, announced that its Board of Directors will seek shareholder approval for a 50-for-1 stock split at its annual shareholder meeting on June 6. If the resolution is approved, each shareholder holding one Chipotle share as of June 18, 2024, will receive 49 additional shares, which will be distributed on June 25, 2024. The company’s share price has increased more than 330% in the last five years and crossed the $3,000 mark for the first time yesterday. These steady gains have made it a less appealing pick for retail investors, and the announced stock split will generate more interest in its stock price, given that the stock will be substantially cheaper to access following the split.
Is Chipotle's Current Level of Growth Sustainable?
Chipotle has been growing in leaps and bounds since the pandemic, with the company reporting double-digit YoY revenue growth in each of the last 12 quarters. This growth has come on the back of the growing popularity of its reasonably priced burritos. According to TD Cowen Analyst Andrew Charles, customers still view Chipotle’s products as better value for money compared to other fast food chains, which has been a leading contributor to growth amid inflationary pressures.
To accelerate growth, Chipotle has been aggressively investing in improving its digital capabilities, mobile ordering, and drive-thru facilities. The company's unique drive-thru experience, Chipotlanes, has fueled the company’s growth in recent times and is expected to be a growth driver in the foreseeable future. The company’s loyalty program, which now has more than 38 million members, is also proving to be a growth driver.
Despite macro pressures, Chipotle seems well-positioned to double-digit growth in the next few years.
Better To Dive In Prior To Split?
In theory, a stock split does not impact the valuation of a company. However, from a market performance perspective, Chipotle stock will become more appealing at a lower price point, especially to retail investors. Renewed retail investor enthusiasm may push Chipotle stock price higher in the post-split era, which makes investing in the company before the split a rational decision from a strategic perspective. Investors, however, will have to be wary of the premium valuations at which Chipotle is trading today. The company is currently valued at a forward non-GAAP P/E of 54 compared to just 23 for McDonald’s Corporation (MCD), which suggests years of future growth is already baked into Chipotle’s market value today.
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