Chipotle’s stock split is planned for the end of the month.
One stock that was arguably overdue for a stock split is Chipotle Mexican Grill (CMG 2.24%). Trading at around $3,089 per share, its price is among the highest you can find on the market. S&P500.
While it can be difficult to predict if and when a company will split its shares, it’s a move that can make sense when a stock price hits that level. At a lower price, investors do not need to purchase fractional shares and thus become accessible to a larger number of investors.
Chipotle’s next stock split will be on a 50-for-1 basis, bringing the stock price down to around $61. The stock will trade post-split on June 26 and will be the first time the company has split its shares in its 30-year history. Should you invest in Chipotle before stock split?
Is Chipotle’s stock split really important?
Stock splits can generate excitement and optimism around the company. Even though Chipotle’s stock was already rising when it announced its stock split in March, the news certainly didn’t hurt. Its shares have continued to rebound and are up more than 35% in 2024.
But a stock split essentially changes nothing for investors. If you own 10 shares of the company today, you will own 500 shares after it splits. The difference will simply be that the price is also divided by 50. Instead of 10 shares at $3,089, you will have 500 shares at $61.78 – assuming the price does not change at the time the split occurs.
In terms of overall position in the company, nothing will change. Aside from the lower share price and the fact that it is easier for investors to own all of the company’s stock, there is no reason to suggest that the restaurant’s stock will become a commodity best buy after the split.
The biggest question for investors is valuation
Another thing that won’t change is valuation. Even though the stock price will change, the stock will remain just as expensive in terms of earnings. And that’s the biggest problem right now: Investors are paying a high multiple for Chipotle stock.
The stock is trading at an incredibly high level, 67 times its current earnings. That’s nearly 3 times the average S&P 500 stock, for which investors pay 23 times earnings. And to make matters worse, the company’s growth rate is slowing.
CMG Revenue Data (Quarterly Growth YoY) by YCharts
Its same-store sales increased 7% in the first three months of the year. And for the full year, Chipotle expects comparable sales growth to be between 5% and 10%, which is exactly where it is now.
That’s a decent growth rate for Chipotle, but the big question investors will have to ask is whether it justifies a multiple of nearly 70 times earnings.
Should you buy Chipotle stock today?
Chipotle has made a great investment over the years and the company continues to grow. But unless you plan to buy and hold the stock for several years, its current valuation might make it too expensive to hold right now. The high earnings multiple means investors are already pricing in a lot of the company’s future growth.
For Chipotle stock to continue to rise, it will need to continue delivering solid results, without any hiccups along the way. Investors might be better off looking for other growth stocks.
