Shares of Chipotle Mexican Grill Inc. (NYSE: CMG) shot up nearly 6% in after-hours and pre-market trading after the company announced that its Board of Directors had approved a 50-for-1 stock split. The split must still receive shareholder approval.
The company will formally ask shareholders to vote at the company's annual meeting on June 6, 2024. If approved, shareholders who own CMG stock on or before the record date of June 19, 2024, would receive 49 additional shares for every share they own. The new shares will be issued after the market closes on June 25, 2024.
This is the first time in the company's history that it has split its stock. In making the announcement, chief financial officer Jack Hartung said the decision was made to make the stock more accessible to employees and a wider group of retail investors.
Investors may recall that Walmart Inc. (NYSE: WMT) also cited a desire to make its shares more accessible to employees when it announced its own 3-for-1 stock split in January 2024.
In a separate but related announcement, Chipotle plans to issue a special one-time equity grant for all restaurant general managers and crew members with over 20 years of service.
Analysts Got This One Right
Chipotle has made the list of companies that were likely candidates to split their stock for months. CMG stock is trading at record highs due to strong demand from the company's loyal and more affluent consumer base. CMG stock is up 72% in the last 12 months and 21% in 2024.
A considerable part of that demand is reflected in the company's bottom line. For the full year 2024, Chipotle generated $44.87 in earnings per share (EPS). That was a 36.7% year-over-year increase.
Furthermore, the company had never split its stock before. That fact, combined with a high share price, isn't reason enough to consider the split. For example, Warren Buffett has never split Berkshire Hathaway Inc. (NYSE: BRK.A) Class A shares despite its six-figure share price.
The average trading volume for CMG stock, while still around 250,000 shares a day (which is considerable), is down from around 600,000 five years ago. But the company didn't cite that as a reason for the split.
Should You Get Involved with CMG Stock?
Chipotle stock is approaching a new record high after the stock split announcement. It's natural for investors who haven't owned CMG stock to want to take a position. There are many reasons to own Chipotle stock as a long-term investment.
But remember, stock splits don't change anything fundamentally about a company. And at 52x forward earnings, Chipotle will still be trading at a premium valuation among retail stocks. Therefore, if your sole objective is to take advantage of the stock split, you may want to wait.
Chipotle analyst ratings on MarketBeat show bullish sentiment on CMG stock, which will only likely increase closer to the split date. However, there is some correlation that shows stocks with favorable analyst sentiment before a split tend to underperform the broader market for months after the split takes place.
Shares of CMG stock will be around $60 after the split. If you want to get involved, that may be the time to step in. The company doesn't issue a dividend, which would take away a key advantage from buying the stock before the split.
