Chipotle Mexican Grill, the burrito-centric chain that first hit the stock market back in 2006, is ready to make a groundbreaking move come June: initiating a massive 50-for-1 stock split. Investors are abuzz with excitement as each current share will bring in a bonanza of 49 additional ones. While the split is pending shareholder approval, all signs point to a resounding “yes!”
Stock splits have captivated financial enthusiasts, but the real meat of the matter lies elsewhere when it comes to Chipotle stock. Amidst the clamor for the imminent 50-for-1 split, one salient truth rings clear.
Unveiling the Investment Landscape
There’s no rush to pounce on Chipotle stock before the split as stock splits hold no sway in generating shareholder wealth. Presently, Chipotle’s stock is priced near $3,000 per share. After the split, this figure will whittle down to approximately $60 per share, a change that neither adds nor subtracts value.
The path to future shareholder value for Chipotle mirrors its past success – through robust business expansion.
Chipotle’s trajectory post its IPO has been nothing short of exceptional. Growing from around 500 outlets to a whopping 3,400+ today has fueled revenue escalation. Not just that, but increased sales per outlet have seen average unit volumes spike from $1.4 million back in 2005 to over $3 million by the close of 2023.
The surge in locations and revenue per outlet has translated into explosive growth for Chipotle’s bottom line as well.
Data by YCharts.
This narrative is what propelled Chipotle’s stock from $22 at IPO to its current standing of over $2,900 and will continue to be the bedrock for creating investor value moving forward.
Make no mistake; Chipotle’s CEO Brian Niccol firmly believes the growth saga is far from reaching its climax. During the full-year 2023 results disclosure, Niccol shared his vision for the company, foreseeing a long-term potential to exceed 7,000 outlets in North America – more than double the current count. He also anticipates average unit volumes reaching above $4 million in due course.
The impending stock split at Chipotle holds no sway over its capacity to fulfill these strategic business objectives, making it imperative for investors to concentrate on the essence of the business itself.
Decoding the Stock Split Rationale
Despite the insignificance of stock splits in the grand scheme of things, there exists a silver lining to Chipotle’s 50-for-1 initiative. Firstly, a stock trading at $60 per share is far more palatable to individual investors than one soaring at $2,900 per share. Not everyone has access to fractional shares, and the post-split price could offer an entry point to new investors eyeing Chipotle stock.
Additionally, Chipotle stock options will swiftly become more accessible. With the necessity of at least 100 shares for options contracts, the current levels have set a high barrier of nearly $300,000, pricing out many potential investors.
The landscape of stock options presents myriad strategies, some more perilous than others. Enter the buy-write strategy, considered relatively safer in certain scenarios – Chipotle stock being a prime example.
For context, an ardent supporter of Chipotle’s business, I harbor concerns about its stock’s valuation. Despite never being a bargain, the current price-to-sales valuation chart illustrates it is scaling new zeniths.
Data by YCharts.
Imagine an investor yearning for 100 post-split Chipotle shares but grappling with valuation concerns. This investor could procure the shares and simultaneously vend a call option to defray some costs, albeit marginally. The caveat, however, is the obligation to sell the shares if the stock surpasses the option price within the stipulated timeframe, potentially forfeiting greater gains while incurring short-term taxable implications.
Another avenue for existing shareholders involves leveraging the potential of options. Suppose an investor holds a relic of 10 Chipotle shares acquired long ago. Post-split, this stash burgeons to 500 shares.
Given Chipotle’s non-dividend model, income creation through popular options strategies could prove enticing for long-term shareholders.
While the stock split at Chipotle portends no seismic alterations to its core operations, it harbors optimistic outcomes for investors.
Feeling the urge to invest $1,000 in Chipotle Mexican Grill? Ponder this:
Prior to delving into Chipotle Mexican Grill’s stock waters, delve into this tidbit:
The Motley Fool Stock Advisor analysts have pinpointed the 10 finest stocks for investor portfolios, poised to furnish substantial returns in the imminent future. Surprisingly, Chipotle Mexican Grill didn’t even make the esteemed cut. These 10 stocks might just be the ticket to mammoth returns ahead.
Stock Advisor isn’t just a service; it’s a roadmap to prosperity, offering counsel on portfolio construction, analyst updates, and bi-monthly stock recommendations. Since 2002, the Stock Advisor service has lapped the S&P 500’s return thrice-fold*.
Curate your investment insight now, explore the 10 stocks.
*Stock Advisor returns as of March 21, 2024
Jon Quast stands neutral in all discussed stocks. The Motley Fool maintains positions in and endorses Chipotle Mexican Grill. Full transparency is paramount to The Motley Fool’s ethos.
The writer’s views and opinions expressed are personal beliefs and not necessarily indicative of those held by Nasdaq, Inc.
