For the full year, management is expecting comparable sales growth in the mid- to high single digits, which likely means 6% to 9%. In June and July, it has seen comparable sales growth slow down to 6%, which is a big change from the 11.1% in Q2. Management said Q2 had some one-time benefits, including the launch of a temporary popular menu item. Investors were probably disappointed that growth is expected to slow in the coming quarters.
Is Chipotle stock a buy now?
The company’s rewards program surpassed 36 million members in 2023, an increase of 14%. This has helped digital orders grow faster than in-restaurant sales, representing 37% of total food and beverage revenue in 2024. If you’re a value investor, you won’t want to take a bite out of Chipotle at this level. But some growth investors may consider adding a few shares to their portfolio as part of a buy-and-hold strategy. Over time, Chipotle — thanks to its expansion plans and brand strength — still may have some room to run. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer.
- Another school of thought suggests investor psychology comes into play.
- If trailing EPS of approximately $1.021 grows at 15% for the next five years, the metric will double to $2.05.
- A stock split can make shares more affordable, but you shouldn’t buy a stock just for that reason.
Chipotle Stock Has Fallen 25%: Should You Buy the Stock After Its Historic Stock Split?
For those lucky enough to get in on its IPO in early 2006, the stock has soared from $22 to roughly $2,798, a mind-boggling gain of 12,616%. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. This expansion could drive revenue higher and serve as a catalyst for Chipotle to take off again from its new lower share price. All of this has helped the company increase total revenue in the double digits quarter after quarter and grow operating margin. In the most recent quarter, revenue increased more than 14% to $2.7 billion, and operating margin climbed to 16.3%, up from 15.5% year over year. Chipotle reported $2.7 billion in revenue and a 16.3% operating profit margin when it announced first-quarter results in April.
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Shares of Newport Beach, California-based Chipotle were up 3.7% in midday trading Wednesday. The stock has been on a rollercoaster since the split was approved on June 6, hitting a high of $3,427.61 per share on June 18 before tumbling below the $3,200 mark Monday. Trading on the split basis will begin at start of trading Wednesday. Investors were required to hold shares by the end of the trading day on June 18 to be included in the split. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Chipotle Mexican Grill wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Right before the split, Chipotle shares were up 40% year to date (YTD) and crushing the S&P 500 index. Now, with the hype around the split fading and weak guidance in its second-quarter earnings report, shares of the stock have fallen around 25% from all-time highs set in June. Since a retracement to the 200-day moving average, the Chipotle share price has trended sharply higher, with today’s projected opening price placing the stock at a new record high.
In a press release that dropped after the market close on Tuesday, Chipotle announced plans to split its stock for the first time in the company’s 30-year history. This stunning revelation is generating a fresh wave of interest in the restauranteur and its stock. It also raises questions for shareholders regarding the mechanics of a stock split and what it means to investors. Revenue should be able to grow over 10% due to comparable sales growth and more unit growth. Chipotle has roughly 3,500 locations and believes it can hit 7,000 locations just in North America before reaching market saturation. Add in some margin expansion — something the company has proven time and time again — and underlying earnings can grow even faster.
The 50-for-one split is one of the largest in Wall Street history and is aimed at making the fast-casual titan’s shares more affordable, according to Chipotle officials. Now, even though Chipotle seems to be everywhere, the expansion opportunity actually remains pretty big. The company has about 3,500 locations and aims to reach 7,000 in North America — and Chipotle is growing internationally too, with a new leadership team in Europe set to “unlock Europe’s growth potential.” But despite approval from its board of directors, the split isn’t set in stone just yet.
If the Certificate of Incorporation amendment is approved, shareholders of record as of June 18, 2024 will receive 49 additional shares for each share held, which will be distributed after market close on June 25, 2024. Chipotle’s shares are expected to begin trading on a post-split basis at the market open on Wednesday, June 26, 2024. If the split is approved, shareholders of record as of June 18 will receive 49 additional shares for each share they hold — set to be distributed after market close on June 25, Chipotle said.
But if the stock climbs in the coming days, it will be linked to investors’ optimism about Chipotle’s earnings and future prospects — it won’t be linked to the stock split itself. Compared to the current share price of $52.57, that means Chipotle’s five-year forward P/E is 26. A trailing P/E of 26 is not cheap, let alone a P/E five years in the future. For this reason, Chipotle stock still does not look like a buy after its 25% price dip. With comparable sales growth slowing down, Chipotle will likely not grow its EPS at a 32% rate over the next five years.
In 2023, Chipotle generated revenue of $9.9 billion, up 14%, resulting in diluted earnings per share (EPS) of $44.34, up 38%. The fact that EPS is outpacing revenue growth is a sign of scale and leverage, with more profits dropping to the bottom line. Furthermore, Chipotle’s comparable restaurant sales (or comps) increased 7.9%, as the number of transactions jumped 5%, and the average check increased 2.9%.
So, does this mean you should rush out to buy the stock after the split? It’s key to note that Chipotle shares are expensive for a restaurant operator, trading at an eye-popping 57x forward earnings estimates. Chipotle at $63 today and Chipotle at more than $3,000 yesterday are equally expensive. Chipotle’s aforementioned digital strategy is also driving growth.
Share prices are divided on an equivalent basis, so the split does not directly change an investment’s total dollar value. Shareholders of record as of June 18, 2024 will receive 49 additional shares for each share held, which will be distributed after market close on June 25, 2024. Chipotle’s shares will begin trading on a post-split basis at the market open on Wednesday, June 26, 2024. With the potential of a cheaper going price for a share of Chipotle stock, the fast food chain believes a 50-for-1 split would increase accessibility and open up a wider pool of investors. A stock split is when a company increases its number of outstanding shares. That changes the price per share, but not the overall value of shareholders’ holdings.
Chipotle has a long roadmap to steadily adding new locations over the years and has successfully raised prices to protect operating profit margins despite high inflation. Chipotle runs a tight financial ship with $761 million in cash and short-term investments on the balance sheet against zero debt. A stock split can make shares more affordable, but you shouldn’t buy a stock just for that reason.
The company is now consistently repurchasing stock and has declined its shares outstanding by 11.7% in the last 10 years. First, here’s a quick summary of the stock split and how it should affect the company. Stock splits involve the issuing of more shares to current holders to bring down the value of each individual share.
Over the last 10 years, Chipotle has grown its EPS by close to 300%. This growth accelerated during the COVID-19 pandemic’s height and in recent quarters as it has taken market share from other restaurant chains. This was driven by new store openings and strong comparable sales growth — measuring growth at existing locations — of 11.1%. Restaurant-level margins improved to 28.9%, which shows the operating leverage Chipotle is achieving as it scales its fast-casual Mexican concept. Investors were all over Chipotle (CMG -11.77%) before its huge 50-to-1 stock split earlier this year.
The company intends to seek shareholder approval for this amendment at its upcoming annual meeting on June 6, 2024. “We believe the stock split will make our stock more accessible to our employees as well as a broader range of investors,” said Jack Hartung, Chief Financial and Administrative Officer, Chipotle. “With this historic decision, we’ll be better able to reward our team members and empower them to have ownership in our company.”
However, I think there is reason to believe it can grow at a 15% to 20% rate without much change to the overall Chipotle business model. Management can execute a stock split, which divides the company’s stock into a higher number of smaller shares. For example, if Chipotle did a 10-for-1 stock split, its $1,500 shares would be divided into ten shares priced at $150 each. The drive-thru lanes — dedicated to picking up prepaid mobile orders — have proven to drive greater sales and increase profit margins. Chipotle closed out 2023 with 811 Chipotlanes, and the company could add as many as 200 more in 2024. Stock splits don’t change a company’s market value, the value of your current holding, or the valuation of the stock.
For each share of Chipotle stock an investor owns — currently trading for roughly $2,800 per share (as of this writing) — post-split, shareholders will own 50 shares worth $56 each. This follows years of revenue growth for the company, proving its brand strength even during difficult times such as earlier pandemic lockdowns. Chipotle has followed up by opening more and more locations and expanding internationally. So far, this has not only spurred diners to rush to their local Chipotle, but it’s also whetted the appetite of investors. “This split comes at a time when our stock is experiencing an all-time high driven by record revenues, profits, and growth,” Hartung stated. The most common stock splits are typically smaller ratios like 2-for-1 or 3-for-1 — making Chipotle’s proposed 50-for-1 move pretty rare in U.S. stock history.