Restaurant chain shares Chipotle Mexican Grill (NYSE: CMG) have been on an incredible run in recent months. The stock hit a 52-week low of $1,768.64 last October and has since risen to a high of $3,260 on May 10.
Adding to the interest surrounding the stock is the company’s March 19 announcement of a 50-for-1 stock split, one of the largest in the history of the New York Stock Exchange. The shares are expected to start trading on June 26 after the split.
Chipotle shares recently fell from their 52-week high. Does this create a buying opportunity ahead of the impending stock split? Let’s look at the company’s performance to arrive at an answer.
Chipotle’s Business Expansion
The rise in Chipotle’s stock price in recent months and its planned stock split are indicative of investor demand to own a piece of the company. That’s understandable given Chipotle’s goal to expand its business.
The company has a goal of 7,000 restaurants in North America. At the end of the first quarter, Chipotle was about halfway to this goal with 3,479 locations. This means the company still has years of business growth ahead of it.
Chipotle is strategic in its expansion, as evidenced by the Chipotlanes store format. These are drive-through locations where customers can quickly pick up orders placed online.
The company aims to open at least 285 new locations by 2024, 80% of which will be Chipotlanes. The emphasis on Chipotlanes illustrates a key factor in the company’s success, which is transporting as many customers as possible to its locations.
CEO Brian Niccol explains, “Our strong sales trends were fueled by our focus on improving throughput in our restaurants.”
Chipotle’s sales growth
And Chipotle’s sales were indeed strong. In the first quarter, revenue rose 14% year over year to $2.7 billion. One of the factors contributing to this sales growth was the company’s addition of 255 new stores since the first quarter of last year.
Another key contributor was rising sales at existing stores, and here Chipotle saw a 7% year-over-year increase in the first quarter. Expanding this comparable store turnover is desirable because it means that turnover growth is not dependent on adding new stores.
Chipotle has successfully used technology to drive sales growth as well. It offers a rewards program accessible through its website and mobile app, and uses these channels to advertise to a base of loyal customers. As a result, digital sales amounted to 36.5% of food and beverage sales in the first quarter.
Other factors to consider about Chipotle stock
The company is not only growing revenue; the bottom line also increases. First quarter net income was $359.3 million, an impressive 23% increase from the previous year’s $291.6 million. This strong growth was helped by an improvement in operating margin at the restaurant level, which increased from 25.6% in the first quarter of 2023 to 27.5% this year.
These numbers show that Chipotle is a well-managed company. It manages costs while driving revenue growth – exactly the kind of performance you want to see in a business.
As a result, Chipotle has been able to achieve incredible earnings per share (EPS) growth. First quarter diluted earnings per share were $13.01, up 24% from the prior year’s $10.50. Not only that, Chipotle’s diluted earnings per share have consistently eclipsed those of its competitors in recent years.
These competitors include restaurant giants McDonald’s, StarbucksAnd Yum! To noticewhich owns several fast food chains such as Taco Bell and Pizza Hut.
Chipotle has many qualities that make it an attractive investment, but what do Wall Street analysts think? The consensus among them is an overweight rating with an average share price of $3,350 for Chipotle stock. This shows a belief in some upside over the current share price.
Whether you buy shares before or after the stock split, this will not change the value of your investment. After the split, the increase in the number of outstanding shares leads to a proportional decrease in the share price. For example, if the split occurs at a stock price of $3,140, the post-split amount will be $62.80 per share.
Chipotle is firing on all cylinders right now. It is expanding restaurant locations, successfully leveraging digital channels and growing top and bottom lines. These factors make Chipotle stock a valuable long-term investment, whether you buy now or after the stock split.
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Robert Izquierdo has no position in the stocks mentioned. The Motley Fool holds and recommends positions in Chipotle Mexican Grill and Starbucks. The Motley Fool has a disclosure policy.
Is Chipotle Stock a Buy Before the Stock Split? was originally published by The Motley Fool
