Chipotle Mexican Grill (NYSE:CMG) is one of the most recognized restaurant chains in the world. His constant focus on food quality and top-notch customer service has allowed him to build one of the most loyal customers among fast food companies.
With sizzling carne asada, flavorful burritos, and fresh avocado, it’s hard not to enjoy a meal at Chipotle. However, the company is cooking something new, and it has nothing to do with food.
Chipotle’s board of directors recently approved a 50-to-1 stock split. Assuming the company’s shareholders give approval on June 6, the split-adjusted shares will go public later this month.
Let’s dive into the mechanics of the stock split and evaluate whether Chipotle stock is a buy right now.
Why is Chipotle splitting its shares?
As of this writing, Chipotle shares are trading at around $3,063. Its record stock price was around $3,200.
Generally speaking, when a stock starts hovering around all-time highs, buying activity can sometimes slow down. Indeed, investors perceive the stock as expensive and begin to look for alternatives.
This behavior, however, is based more on psychology than on the fundamentals of investing. When a company undergoes a stock split, the number of shares outstanding increases by the stated ratio. At the same time, the stock price is reduced by the same ratio – therefore, the company’s market capitalization and valuations remain unchanged.
Nonetheless, Chipotle management believes that splitting its shares will make them more accessible and attractive to employees and retail investors.
Chipotle is the best company in its category
I wouldn’t be surprised if you feel some trepidation when it comes to investing in restaurant stocks. Macroeconomic factors such as inflation and rising interest rates have weighed on consumers’ discretionary spending. So a business that depends on people’s willingness to pay for small pleasures like takeout meals may not appear to be the most attractive investment opportunity.
Chipotle has differentiated itself from some of its peers through investments in technology. The company makes venture capital-style investments across all areas of the food spectrum, from ingredient sourcing to sustainability and more. These investments helped it innovate its menu offerings, build a digital app, and understand customer dynamics on a deeper level. Consequently, the the company generates transformational growth both in terms of revenue and profits.
Yet while all of this is encouraging, there is another variable that is important to consider before making the decision whether or not to buy Chipotle stock.
Should you invest in Chipotle stock before the split?
When a stock split looms, the question of whether to buy shares before or after it takes place is a common conundrum for investors. Often, stock prices rise following a split, as more investors flock in and snap up shares at a perceived lower price…
