Chipotle Stock Split: Chipotle Mexican Grill Inc up for a Stock Split After Stellar Stock Performance Over the Years.
|Chipotle Stock Split: Chipotle has never announced a stock split in its 16 years of trading history on the NYSE. But there is a first time for everything.|
If you are looking for an outperforming stock in this bear market, Chipotle Mexican Grill Inc stock (NYSE: CMG) will probably top the list. The stock has consistently delivered over the last decade and has outperformed every US index in the times of Covid 19 and the current outgoing bear market. Since the start of the year, CMG stock has given -5% returns, compared to Nasdaq giving-20% return, or Dow Jones index gives -10.34% return (as of 6th August 2022). If compared over a longer time frame like five years, this particular stock has given stellar returns of 390.42%, as compared to the Nasdaq index giving modest returns of 102%, and the Dow Jones Index performing even worse at returns of only 50%.
CMG stock debuted on NYSE in the year 2006, at a price of just $42.20 and it has been in an uptrend since then. It has given an outstanding 3693.32% return since its debut. Early investors have enjoyed whooping returns, but it has taken the fun out of new investors as the share price has gone beyond $1600, the last traded price was $1600.78 (as of 06.08.2022). This high share price calls for a share split in the CMG stock.
In this article, we will talk about the much-anticipated stock split, its benefit for the CMG stock, and whether the stock split will make it a buy or not.
Chipotle Stock Split: Factors in favor of stock split for Chipotle Mexican Grill
For Short Term Bullish Push – Technically, a Stock split does not change anything about the company, it is just like eating pizza in 8 slices or 16 slices, does not matter as long as the base remains the same. But the stock split does buoy the sentiments. It is seen that stocks announcing stock splits at the right time, do get a bullish push in the short term. For example, companies like Amazon Inc and Alphabet announced a 20:1 stock split recently which got effective on June 6, 2022, and July 15, 2022, respectively. As a result, Amazon Inc is up by 23.15% and Alphabet stock is up by approximately 8% since July 15. CMG stock has performed outstandingly over the years, but since the beginning of 2022, it is down by about 5.32%. It is definitely in dire need of a short-term bullish push and to turn sentiments positive by a stock split and then good fiscal quarter results can kick in to support the buoyant price.
Out of reach for small retail investors- The current share price is $1600, and it costs a sizable chunk for a small investor to buy CWG stock and add it to their portfolio. Add to it, that many brokers do not offer fractional shares. Moreover, it makes employee stock compensation more difficult for the management. In 2018, Chipotle awarded its 71,000 employees some cash bonuses and stock grants. The share price was $300 then, and it has run up more than five times since then. Now it is much more difficult for the company to execute a share compensation program at a share price of $1600. A stock split at this juncture will be beneficial for both retail traders and employees of the company.
A strong business- A stock price above $1000 is a kind of indication that the company should go with the stock split. But, if we talk about the timing, it must match the strong business. A stock split is used by the company to send message in the market that management feels that the business is strong and there is a possibility for handsome future growth hence they are opting for a stock split. For Chipotle, the revenue has grown at an average pace of 12% over the last decade and the net income has grown by 11% in the same duration despite the fact that Covid 19 nearly halted the food industry. The company has faced numerous food safety issues over the past decade, and in 2020, the company agreed to pay the biggest federal fine of its kind to resolve criminal charges for food safety issues between 2015 to 2018, but it seems everything is returning back on track. A stock split for a strong business is eminent for the future growth of the stock price.
A positive outlook- Any company thinking about the split should look at the outlook of the business before the split. Management does not want to split the stock and have it go down as the business struggles. For example, Bank of America and Wells Fargo split the stock in the years 2004 and 2006 respectively, and then in the following years, the market and bank business crashed. Luckily, for Chipotle, the business outlook remains quite strong. They have raised the following year’s revenue and income guidance over each year, with a small exception of Covid 19. Management believes that it can open 7000 stores in the next four to five years, with a rate of 8 to 10% increase in the store count every year. It currently has over 3000 stores and it has great scope of expansion, as compared to Starbucks having 32000 stores and McDonald’s having 38000 stores. So, Chipotle is in the right direction and a stock split at this time will only boost the investors’ confidence.
Conclusion: Should an investor wait for a stock split before buying CMG stock?
Chipotle has never announced the stock split in its 16 years of trading history on the NYSE. But there is a first time for everything. But, for Chipotle, there are various positive factors to attract investors apart from the stock split. The company has $761 million in cash and short-term investments against zero long-term debt. Moreover, it is trading at price to earnings ratio of only 43, a fair ratio considering the growth opportunities.
Chipotle is a quality stock, and investors should buy it at a fair price. It is better to pick a quality stock at a fair price rather than a poor-performing business stock at a lower price.
Management has shown interest in the share repurchase program over the years and if a stock splits in the near future and the business grows as it looks today, that means more profit per share and more investment returns for shareholders.
Chipotle is a simple business carved out of selling meat, beans, and rice, but they have perfected the execution and maintained the quality over the years. The investor must keep an eye over the stock and a split will be like a cheery on-cake opportunity to accumulate quality stocks. Hope split happens sooner than later to reward the hard-working employees and patient investors.
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