Chipotle Mexican Grill's 50-for-1 Stock Split Is Imminent: 10 Things You Need to Know | The Motley Fool (2024)

Fast-casual restaurant chain Chipotle is set to conduct its first-ever stock split after rallying more than 14,000% from its $22 initial public offering (IPO) price in January 2006.

Although artificial intelligence (AI) and the "Magnificent Seven" stocks are widely credited with lifting the major stock indexes to record levels, it can be argued that stock splits are the hottest trend on Wall Street right now.

A stock split is an event that allows a publicly traded company to alter its share price and outstanding share count by the same factor. Since 2024 began, nine top-notch businesses have announced and/or completed a split.

Chipotle Mexican Grill's 50-for-1 Stock Split Is Imminent: 10 Things You Need to Know | The Motley Fool (1)

Image source: Getty Images.

Stock splits come in two varieties -- forward and reverse -- with investors decidedly favoring the former. Forward-stock splits are designed to make shares more nominally affordable for everyday investors, while a reverse-stock split aims to increase a company's share price to ensure it meets the minimum listing standards of a major stock exchange, or perhaps has a high enough share price to attract attention from institutional investors and mutual funds.

After watching retail kingpin Walmart and AI titan Nvidia complete their respective 3-for-1 and 10-for-1 forward splits, it's time for fast-casual restaurant chain Chipotle Mexican Grill (CMG -5.24%) to join this elite stock-split club. With its stock split imminent, here are the 10 things you need to know.

1. Chipotle's forward split is historic

On March 19, Chipotle's board of directors announced a 50-for-1 forward split, which marks one of the largest nominal stock splits for any company in the history of the New York Stock Exchange. This split, which was approved by the company's shareholders earlier this month, with increase the outstanding share count by a factor of 50 while lowering the share price to 1/50th of its value.

2. It'll become effective following the closing bell

When I said Chipotle's stock split is "imminent," I wasn't exaggerating. The effective date for its 50-for-1 split is after the close of business today, June 25. Before trading begins on June 26, Chipotle's share price will be reduced to 1/50th of what it closes at today.

Keep in mind that it's not uncommon for online brokers to take up to 24 hours to recognize that a stock split has taken place. If you're a Chipotle shareholder, don't panic if you notice a sizable (but incorrect) unrealized loss during the morning hours of June 26.

3. Stock splits are purely cosmetic

Although stock splits are all the rage on Wall Street right now, they're purely cosmetic. Altering a company's share price and outstanding share count doesn't impact its market cap or operating performance. Whatever market cap Chipotle Mexican Grill ends with on June 25 will be precisely what it's worth on a post-split basis just prior to the start of trading on June 26.

4. Chipotle's employees are a prime catalyst behind its stock split

Something you might not realize is that Chipotle's first stock split in more than 18 years as a publicly traded company is being undertaken for its employees just as much as retail investors. The company wants to encourage its workers to participate in its employee stock purchase plan (ESPP), which'll be far more enticing when shares of the company trade closer to $64 instead of $3,200.

Walmart's 3-for-1 split was also enacted to encourage workers to participate in the company's ESPP.

5. The company is enjoying exceptional pricing power

Since pricing its shares at $22 for its initial public offering (IPO) in January 2006, Chipotle's stock has increased by more than 14,000%! One of the reasons the company has been such a phenomenal investment is because its management team realized early on that consumers would willingly pay more for its food if it used responsibly raised meats, prepped its food daily in its restaurants, and sourced its vegetables locally (when possible). This exceptional pricing power has helped fuel Chipotle's sustained outperformance.

Chipotle Mexican Grill's 50-for-1 Stock Split Is Imminent: 10 Things You Need to Know | The Motley Fool (2)

Image source: Chipotle Mexican Grill.

6. Having a limited menu is a ticket to success in the restaurant industry

Another catalyst behind Chipotle's historic 50-for-1 forward split is the company's limited menu. Shunning the idea that "bigger is better," Chipotle's management team has stuck to a relatively small menu, which helps to maximize food prep efficiency and keeps lines moving quickly in its restaurants.

Furthermore, having a smaller menu helps Chipotle generate a lot of buzz when it does introduce a new food item.

7. Innovation has been a key growth driver

The company's innovation has played a key role in its greater-than 14,000% return since pricing its IPO in 2006. Beyond just introducing a new food item every now and then, the company made waves with its addition of dedicated mobile order drive-thru lanes, which it calls "Chipotlanes," beginning in 2018. Chipotlanes are what helped the company thrive during the COVID-19 pandemic.

8. Stock-split stocks outperform the broader market

The reason investors flock to stock-split stocks is because they historically run circles around the broader market. Between 1980 and the present, data from Bank of America Global Research shows that the average company enacting a forward split has returned 25.4% in the 12 months following its stock-split announcement. By comparison, the benchmark S&P 500 has delivered an 11.9% average return over the same timeline.

9. Billionaire investors have a mixed view of Chipotle's stock

Even though stock-split stocks have history on their side, and Chipotle has leaned on a number of competitive advantages to grow its earnings per share, Wall Street's brightest money managers are mixed on what the future holds for this top-performing fast-casual restaurant chain.

Based on Form 13F filings that detail first-quarter trading activity, billionaires Ken Griffin of Citadel Advisors, John Overdeck and David Siegel of Two Sigma Investments, and Jeff Yass of Susquehanna International were all buyers of Chipotle stock.

Meanwhile, activist investor Bill Ackman of Pershing Square Capital Management, Steven Cohen of Point72 Asset Management, and Israel Englander of Millennium Management all reduced their fund's respective positions ahead of the company's imminent stock split.

Chipotle Mexican Grill's 50-for-1 Stock Split Is Imminent: 10 Things You Need to Know | The Motley Fool (3)

CMG PE Ratio (Forward) data by YCharts.

10. Chipotle's stock is exceptionally pricey (and a split doesn't change that)

Last but certainly not least, Chipotle Mexican Grill's valuation makes absolutely no sense -- and a 50-for-1 stock split isn't going to change that. While there's no question that the company deserves a valuation premium for continually out-innovating and out-executing other fast-casual restaurant chains, Chipotle's same-store sales growth of 7% during the first quarter doesn't come close to meriting a multiple of 58 times forecast earnings this year or a forward price-to-earnings (P/E) ratio of 48.

Once the stock-split euphoria surrounding Chipotle wears off, don't be surprised if its stock undergoes a sizable correction.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has positions in Bank of America. The Motley Fool has positions in and recommends Bank of America, Chipotle Mexican Grill, Nvidia, and Walmart. The Motley Fool has a disclosure policy.

Chipotle Mexican Grill's 50-for-1 Stock Split Is Imminent: 10 Things You Need to Know | The Motley Fool (2024)

FAQs

Chipotle Mexican Grill's 50-for-1 Stock Split Is Imminent: 10 Things You Need to Know | The Motley Fool? ›

Chipmaker Broadcom (AVGO) completed a 10-for-1 stock split on July 12 after market close. Before the split, the AI technology rally had driven the company's stock price above $1,700 per share. The 2024 split was the first in the company's history.

Will avgo stock split in 2024? ›

Chipmaker Broadcom (AVGO) completed a 10-for-1 stock split on July 12 after market close. Before the split, the AI technology rally had driven the company's stock price above $1,700 per share. The 2024 split was the first in the company's history.

Is Chipotle stock worth buying? ›

Chipotle has 16.46% upside potential, based on the analysts' average price target. Is CMG a Buy, Sell or Hold? Chipotle has a consensus rating of Moderate Buy which is based on 18 buy ratings, 8 hold ratings and 0 sell ratings.

Why is Chipotle stock dropping? ›

Shares of Chipotle (NYSE:CMG) have been on an overall downtrend since peaking on June 17 at $69.26 per share. This is likely due to several factors, such as its high valuation, peaking same-store sales, and a pause in menu price hikes, according to four-star UBS analyst Dennis Geiger.

Are stock splits good? ›

Are Stock Splits Good or Bad? Stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors. Therefore, a split is often the result of growth or the prospects of future growth, and it's a positive signal.

How high will AVGO stock go? ›

Average Price Target

Based on 23 Wall Street analysts offering 12 month price targets for Broadcom in the last 3 months. The average price target is $1,936.43 with a high forecast of $2,400.00 and a low forecast of $1,560.00. The average price target represents a 13.86% change from the last price of $1,700.67.

Which stock will be split in 2024? ›

Stock Splits
CompanyEx-DateOld fv
KSB25 July 202410.00
Almondz Global23 July 20246.00
NHC Foods22 July 202410.00
Elecon Engg.Co19 July 20242.00
21 more rows

Should I buy Chipotle stock when it splits? ›

Chipotle looks like a good bet after its recent 50-for-1 stock split. The split and pullback in the share price have put CMG stock at its most affordable level in more than 10 years. The company continues to grow at a strong and steady rate. There is every reason to believe that the growth trajectory can continue.

Who owns most of Chipotle stock? ›

What percentage of Chipotle (CMG) stock is held by retail investors? According to the latest TipRanks data, approximately 88.05% of Chipotle (CMG) stock is held by retail investors. Who owns the most shares of Chipotle (CMG)? iShares owns the most shares of Chipotle (CMG).

Is Chipotle doing well financially? ›

Chipotle Mexican Grill (CMG) has given long-term investors plenty to cheer about. Over the past 15 years, Chipotle stock has averaged an annual gain of 28%, easily outpacing the S&P 500's 14.8% total return (price change plus dividends).

Why is Chipotle in trouble? ›

The underlying issue behind the Chipotle scandal was a failure in food safety management. Deficiencies were identified in food handling procedures, employee hygiene practices, and supply chain monitoring. These shortcomings allowed for product contamination and the subsequent spread of infections among customers.

What is the future of Chipotle stock? ›

Chipotle stock price stood at $56.65

According to the latest long-term forecast, Chipotle price will hit $80 by the end of 2024 and then $100 by the end of 2025. Chipotle will rise to $125 within the year of 2026, $150 in 2028, $200 in 2031 and $250 in 2036.

What is the highest Chipotle stock has ever been? ›

Historical daily share price chart and data for Chipotle Mexican Grill since 2006 adjusted for splits and dividends. The latest closing stock price for Chipotle Mexican Grill as of July 12, 2024 is 57.67. The all-time high Chipotle Mexican Grill stock closing price was 68.55 on June 18, 2024.

Is it better to buy before or after a stock split? ›

The short answer is it doesn't matter, and here's why. As mentioned earlier, a stock split doesn't change the value of the company or the value of an investor's holding. If you buy one share today or 10 shares after the split, you'll be investing the same amount of cash.

Is 10:1 stock split good or bad? ›

One side says a stock split is a good buying indicator, signaling that the company's share price is increasing and doing well. This may be true but a stock split simply has no effect on the fundamental value of the stock and poses no real advantage to investors.

Who benefits from a stock split? ›

Although the number of outstanding shares increases and the price per share decreases, the market capitalization (and the value of the company) does not change. As a result, stock splits help make shares more affordable to smaller investors and provide greater marketability and liquidity in the market.

What is AVGO prediction for 2025? ›

According to analysts, AVGO price target is 189.19 USD with a max estimate of 240.00 USD and a min estimate of 17.60 USD.

What is the stock price prediction for Broadcom in 2024? ›

The consensus view is that the stock will be trading at $170.64 in a year's time, although predictions range from just $4.40 to $240. In mid-June 2024, William Kerwin, equity analyst at Morningstar, increased his fair value estimate for Broadcom to $1,550 per share.

Has Broadcom stock ever split? ›

The giant semiconductor maker conducted a 10-for-1 stock split following the market close on July 12. The "decline" for Broadcom will be the equivalent of dividing one piece of pizza into 10 slices.

What is AVGO stock forecast for 2030? ›

Broadcom stock forecast for 2025: $ 2,314.60 (36.10%) Broadcom stock prediction for 2030: $ 10,808 (535.53%)

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