Chipotle Mexican Grill (CMG 0.39%) shares, which soared to highs beyond $3,000 in recent times, today start trading at a new, more appetizing price. The company has completed its 50-for-1 stock split, one of the biggest in New York Stock Exchange history and a first-ever split for the fast-casual restaurant chain. As a result, the stock, considering the last closing price, is set to trade at around levels of $63 right now.
This follows years of revenue growth for the company, proving its brand strength even during difficult times such as earlier pandemic lockdowns. Chipotle has followed up by opening more and more locations and expanding internationally. So far, this has not only spurred diners to rush to their local Chipotle, but it's also whetted the appetite of investors.
So, what's next for the popular chain and its stock? Let's find out.
Image source: Getty Images.
Issuing more shares to current holders
First, here's a quick summary of the stock split and how it should affect the company. Stock splits involve the issuing of more shares to current holders to bring down the value of each individual share. The ratio of the split determines the final price. In the case of Chipotle, current shareholders received 49 new shares for every one share held. The idea is to open the investment opportunity up to a broader range of investors -- those who may not have, or want to invest, thousands of dollars in just one stock.
Stock splits don't change a company's market value, the value of your current holding, or the valuation of the stock. They're purely mechanical operations, meaning a stock split in and of itself isn't a reason to buy or sell a particular player.
That said, a stock split is positive for a couple of reasons. As mentioned, it makes it easier for some investors to buy without turning to fractional shares. And a split suggests a company is optimistic about its future and the potential of the stock price to charge higher again. A split also may put a company on the radar screen of more investors as it's talked about in the investment community.
So, this stock split is good news for Chipotle and could help more people invest in the stock over time. But if the stock climbs in the coming days, it will be linked to investors' optimism about Chipotle's earnings and future prospects -- it won't be linked to the stock split itself.
Chipotle's strategy
Speaking of earnings, Chipotle built a solid track record as its strategy of a limited menu featuring fresh products resonated with the consumer. It's also known how to connect with diners by building up its digital platform and increasing its number of Chipotlanes, or pickup windows -- streamlining the ordering and pickup processes for customers.
All of this has helped the company increase total revenue in the double digits quarter after quarter and grow operating margin. In the most recent quarter, revenue increased more than 14% to $2.7 billion, and operating margin climbed to 16.3%, up from 15.5% year over year.
Now, even though Chipotle seems to be everywhere, the expansion opportunity actually remains pretty big. The company has about 3,500 locations and aims to reach 7,000 in North America -- and Chipotle is growing internationally too, with a new leadership team in Europe set to "unlock Europe's growth potential."
This expansion could drive revenue higher and serve as a catalyst for Chipotle to take off again from its new lower share price.
Valuation before and after the split
So, does this mean you should rush out to buy the stock after the split? This depends on your investment strategy. It's key to note that Chipotle shares are expensive for a restaurant operator, trading at an eye-popping 57x forward earnings estimates. And, as mentioned above, the stock split won't lower valuation. Chipotle at $63 today and Chipotle at more than $3,000 yesterday are equally expensive.
If you're a value investor, you won't want to take a bite out of Chipotle at this level. But some growth investors may consider adding a few shares to their portfolio as part of a buy-and-hold strategy. Over time, Chipotle -- thanks to its expansion plans and brand strength -- still may have some room to run.
