Shares of restaurant chain Chipotle Mexican Grill (CMG 0.39%) have gone on an incredible run over the past few months. The stock was at a 52-week low of $1,768.64 last October, and since then, zoomed up to a high of $3,260 on May 10.
Adding to the fervor around shares is the company's March 19 announcement of a 50-for-1 stock split, one of the biggest in the history of the New York Stock Exchange. Shares are expected to begin trading on a post-split basis on June 26.
Chipotle stock has dropped from its 52-week high recently. Does this create a buying opportunity ahead of its impending stock split? Let's dig into the company's performance to arrive at an answer.
Chipotle's business expansion
The rise in Chipotle's share price the past few months, and its scheduled 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 firm is working toward a target of 7,000 restaurants in North America. At the end of the first quarter, Chipotle was about halfway toward this goal with 3,479 locations. This means the company has years of business growth ahead.
Chipotle is being strategic about its expansion, as demonstrated by its Chipotlanes store format. These are drive-through locations designed for customers to quickly pick up orders placed online.
The company aims to open at least 285 new locations in 2024, with 80% of them being Chipotlanes. The emphasis on Chipotlanes illustrates a key factor in the firm's success, which is to drive as many customers through its locations as possible.
CEO Brian Niccol explained, "Our strong sales trends were fueled by our focus on improving throughput in our restaurants."
Chipotle's revenue growth
And Chipotle's sales were indeed strong. In Q1, revenue rose 14% year over year to $2.7 billion. One contributor to this sales growth was the company's addition of 255 new stores since Q1 of last year.
Another key contributor was rising sales in existing stores, and here, Chipotle saw a 7% year-over-year increase in Q1. Expanding these comparable-store sales is desirable, since it means revenue growth isn't dependent on adding new stores.
Chipotle successfully employed technology to drive sales growth as well. It offers a rewards program accessed through its website and mobile app, and uses these channels to market to a base of loyal customers. As a result, digital sales comprised 36.5% of its Q1 food and beverage revenue.
Other factors to consider with Chipotle stock
The company is not only growing its top line; the bottom line is increasing as well. Q1 net income was $359.3 million, an impressive 23% jump up from the prior year's $291.6 million. This strong growth was helped by improvement in restaurant-level operating margin, which rose from 25.6% in Q1 of 2023 to 27.5% this year.
These numbers demonstrate Chipotle is a well-run business. It's managing costs while driving revenue growth -- exactly the kind of performance you want to see in a company.
As a result, Chipotle's been able to achieve incredible earnings per share (EPS) growth. Its Q1 diluted EPS was $13.01, a 24% increase over the prior year's $10.50. Not only that, Chipotle's diluted EPS has consistently eclipsed competitors' over the last several years.
Data by YCharts.
These competitors include restaurant giants McDonald's, Starbucks, and Yum! Brands, which owns multiple fast-food chains such as Taco Bell and Pizza Hut.
Chipotle possesses many qualities that make it an attractive investment, but what do Wall Street analysts think? The consensus among them is an overweight rating with a median share price of $3,350 for Chipotle stock. This shows a belief in some upside from the current share price.
Whether you purchase shares before or after the stock split, it doesn't change the value of your investment. After the split, the increase in outstanding shares leads to a proportional decrease in the stock price. For example, if the split occurs at a $3,140 share price, the post-split amount would be $62.80 per share.
Chipotle is firing on all cylinders right now. It's expanding restaurant locations, successfully leveraging digital channels, and growing the top and bottom lines. These factors make Chipotle stock a worthwhile long-term investment, whether you buy now or after the stock split.
