Chipotle Stock Rises, 50-for-1 Stock Split Announcement Reveals

Shares of Chipotle Mexican Grill Inc. New York Stock Exchange: CMG rose nearly 6% in after-hours and premarket trading after the company announced that its board of directors had approved a 50-for-1 stock split. The split has yet to receive shareholder approval.

The company will formally ask shareholders to vote at the company’s annual meeting on June 6, 2024. If approved, shareholders who own CMG stock by the record date of June 19, 2024, will receive 49 additional shares for each share they own. The new shares will be issued after the market close on June 25, 2024.

This is the first time in the company’s history that it has carried out a stock split. In making the announcement, Chief Financial Officer Jack Hartung said the decision was made to make the stock more accessible to employees and a broader group of retail investors.

Investors might remember this Walmart Inc. New York Stock Exchange: WMT it also cited a desire to make its shares more accessible to employees when it announced its 3-for-1 stock split in January 2024.

In a separate but related announcement, Chipotle plans to issue a special one-time equity grant to all restaurant general managers and crew members with more than 20 years of service.

The analysts got it right

Chipotle has been compiling a list of companies that were likely candidates for a stock split for months. CMG shares are trading at record highs due to strong demand from the company’s loyal, more affluent consumer base. CMG shares are up 72% over the past 12 months and 21% in 2024.

A considerable portion of that demand is reflected in the company’s profits. For full-year 2024, Chipotle generated $44.87 in earnings per share (EPS). This is an increase of 36.7% year-on-year.

Furthermore, the company had never split its shares before. This fact, combined with a high share price, is not a sufficient reason to consider the split. For example, Warren Buffett has never split Berkshire Hathaway Inc. NYSE: BRK.A Class A shares despite six-figure share price.

Average trading volume for CMG stock, while still around 250,000 shares per day (which is considerable), is down from around 600,000 five years ago. But the company did not cite this as the reason for the split.

Should you participate in CMG stock?

Chipotle shares are nearing a new all-time high following the stock split announcement. It’s natural for investors who haven’t owned CMG stock to want to take a position. There are many reasons to own Chipotle stock as a long-term investment.

But remember, stock splits don’t change anything fundamental about a company. And with future earnings of 52x, Chipotle will still trade at a premium valuation among retail stocks. Therefore, if your only goal is to benefit from the stock split, you may want to wait.

Chipotle analyst ratings on MarketBeat show bullish sentiment on CMG stock, which will likely only increase closer to the split date. However, there is some correlation showing that stocks with favorable analyst sentiment before a split tend to underperform the broader market for months after the split takes place.

CMG shares will be around $60 after the split. If you want to get involved, now may be the time to step in. The company does not issue dividends, which would take away a key advantage of buying the stock before the split.

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