Chipotle Mexican Grill (NYSE: CMG) has been a tasty quesadilla of a stock on the stock market for years. The fast-casual restaurant chain did not have a good session on the market on Thursday, however. Shares fell by more than 5% in value, which was not unusual given what had happened the day before.
Stock split indigestion
Chipotle investors started Wednesday with a much larger number of shares than they had previously, due, of course, to the 50-to-1 stock split that went into effect that morning.
That ratio is quite high – most stock splits are closer to 10-to-1 or so – but it feels like a good move considering the price the restaurant operator got per share. A cheaper stock is more attractive, and it’s likely that many investors have flocked to Chipotle recently in hopes that its popularity would increase after the split.
Often during price-boosting events, once the event itself is over, many people take the profits they made in the run-up to the market. This rapid, heavy selling tends to drive down the price of a stock. In the absence of any negative fundamental news for Chipotle, profit-taking is likely the main culprit for Wednesday’s slump.
More of the same
It’s important to note here that, as with any stock split, the value of Chipotle stock didn’t change at all. Investors still held the same number of shares in dollar terms as before; the only changes were the number of shares and the price.
Given all this, no one should abandon Chipotle just because the company is on the other side of a major financial engineering effort. People who believe in the company’s business model might even jump on the price weakness. Given Chipotle’s enduring popularity, it probably won’t last long.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Why Chipotle shares plummeted Thursday, just after the stock split was originally published by The Motley Fool
