Chipotle Mexican Grill (CMG) is making waves in the stock market with a groundbreaking 50-for-1 stock split, a move that is unprecedented for the company and rare in the restaurant industry.
How the stock split will unfold
Starting on Wednesday, June 26, Chipotle will begin trading on a post-split basis following a 50-for-1 stock split that will be completed after the market closes on Tuesday. This split will significantly increase the number of shares outstanding, potentially making the stock more attractive to a wider range of investors. Shareholders of record will receive 49 additional shares for each Chipotle share they owned before the split.
Reasons behind Chipotle’s decision to split its stock
Chipotle, known for its fast service and customizable menu options, has never before undergone a stock split.
The decision to split the stock stems from a desire by company leadership to make Chipotle’s shares more accessible to retail investors. With a pre-split share price around $3,200, Chipotle’s stock could have been seen as expensive for some individual investors.
Company leaders also aim to make the stock more affordable for employees.
“With this historic decision, we’ll be better able to reward our team members and empower them to have ownership in our company,” says Jack Hartung, chief financial and administrative officer of Chipotle in a June press release.
Chipotle’s 50-for-1 stock split: A significant move in NYSE history
Chipotle’s 50-for-1 split is a bold step. While stock splits are common, a 50-to-1 ratio is rare. In fact, it stands as one of the largest stock splits in New York Stock Exchange (NYSE) history.
Most companies have opted for more conservative splits in recent years. For example, in 2023, Tesla completed a 3-for-1 split, and Amazon did a 20-for-1 split. Even Nvidia’s 10-for-1 split earlier this month seems modest compared to Chipotle’s move.
Chipotle has been delivering impressive financial results. Consistent quarterly growth, including success during the pandemic due to their digital ordering system, has fueled the company’s success. This translates directly to their bottom line, with Chipotle reporting a remarkable 14 percent rise in revenue to $2.7 billion in the first quarter of 2024, alongside impressive gains in earnings per share and operating margin.
Understanding stock splits: A slice of the pie, not a bigger pie
It’s crucial to recognize that a stock split, on its own, does not alter the underlying value of a company.
Think of owning a whole apple pie. A stock split is like cutting that pie into more pieces. You still own the same amount of pie, but it’s divided into smaller portions.
In Chipotle’s case, each individual share will be worth a fraction of its pre-split price, while the total value of your holdings will remain unchanged.
So why do companies split their stocks? One reason is to make the stock more accessible to individual investors. A lower share price can feel more attainable. Additionally, a high share price can sometimes restrict trading activity. Splits can enhance trading liquidity, making the stock easier to buy and sell.
Fractional share investing is prevalent at many online brokers these days, allowing investors to get a piece of a company’s shares with a more modest amount of money without needing a stock split.
Looking beyond the split: Considerations for investors
While the stock split itself does not directly impact the value of your holdings, it does not occur in isolation. The announcement of a split often triggers a temporary price increase as investors anticipate future growth.
However, long-term factors such as the company’s financial performance and overall market conditions will likely continue to drive Chipotle’s future market value growth.
For current shareholders, the split means more shares at a lower price. Yet, the split could make the stock more attractive to new investors, potentially affecting the future share price.
As always, investors should conduct their own research and consider their financial goals before making any investment decisions.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. Additionally, investors are advised that past investment product performance is not a guarantee of future price appreciation.