Investors love a good stock split. These events do nothing more than split a pie of the same size into smaller pieces, but they only occur after a company’s stock price has soared, which usually indicates that the company is doing quite well. Better yet, when management decides to split a company’s stock, it implies that it thinks more growth is on the way.
Chipotle Mexican Grill (NYSE: CMG) Wall Street wowed Wall Street in March by announcing a stock split with one of the largest multiples ever: each current share will be split into 50 new shares. The change will take effect on June 25 for shareholders of record on June 18.
Is Now the Time to Buy Chipotle?
Chipotle stock shows no sign of stopping
Chipotle has been an incredible stock to own throughout its time as a publicly traded company, and while it has had some rough patches, it has absolutely crushed the stock. S&P500 in the past five years, but also in most other periods.
It has created a fast-casual model that generates incredible customer loyalty, sales and profits – and that has been difficult to replicate. It is known for selling healthy, fresh Mexican-style dishes at mid-range prices; it’s more expensive than the typical fast food chain, but significantly cheaper than the standard sit-down restaurant. It caters to a wealthier customer base that tends to be more resilient in periods of economic volatility, and has shown strong performance in recent years despite a pandemic and the wave of inflation that followed. It is also incredibly profitable, with high and increasing margins and net revenues.
Other chains have tried to emulate the model and its performance, and many new contenders are being touted as “the next Chipotle.” But whatever its secret sauce, it continues to stand out from its peers. As CEO Brian Niccol recently quipped, “The next Chipotle is Chipotle.”
Take a look at the operating margins compared to that of Sweet green, Shake ShackAnd Cava Group.
What comes next?
Chipotle already has more than 3,000 restaurants, but its goal is to eventually have 7,000 in North America alone. It’s fairly saturated in the major urban markets, so it’s now focusing on the smaller cities and suburban areas where many of its affluent customers live. It is also intensifying its attack on Canada.
It already has some stores in select European markets, so it has plenty of opportunity to expand internationally, and it recently launched its first franchise partnerships for stores in the Middle East. All other locations are owned by the company.
Management also sees a flywheel effect in its operations that creates opportunities for leverage and efficiency. Because it retains a strong workforce and trains them in leadership roles, its stores perform better, with faster service and higher transaction rates.
Is it time to buy now?
Because investors love stock splits, Chipotle shares rose in the wake of news that one was coming. But Chipotle’s shares tend to rise all the time, and went even higher after its stellar first-quarter earnings report.
Stock split stocks appear to rise after they are split, lending support to the argument that investors should buy them in advance. But no one can reliably time the market, and there’s no need to try. If you see the opportunity to buy Chipotle stock, it won’t matter much in the long run whether you bought it before or after the split. What may matter is that the sooner you buy it, the longer you have to amplify its growth, maximizing your overall profits.
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Sweetgreen. The Motley Fool has a disclosure policy.
Chipotle Splits Its Stock 50-for-1 This Month: Should You Buy Now? was originally published by The Motley Fool
