Chipotle Mexican Grill (NYSE: CMG) is one of the most recognized restaurant chains in the world. Its relentless focus on food quality and top-notch customer service has helped it build one of the most loyal followings among fast-food businesses.
With sizzling carne asada, tasty burritos, and fresh avocado, it’s hard not to enjoy a meal at Chipotle. However, the company has something new brewing, and it has nothing to do with food.
Chipotle’s board of directors recently approved a 50-for-1 stock split. Assuming that the company’s shareholders add their approval on June 6, split-adjusted shares will hit the exchanges later this month.
Let’s dive into the mechanics of stock splits, and assess if Chipotle stock is a buy right now.
Why is Chipotle splitting its stock?
At of the time of this writing, shares of Chipotle are trading for approximately $3,063. Its all-time high stock price was about $3,200.
Broadly speaking, when a stock begins to hover around record levels, buying activity can sometimes slow down. This is because investors perceive the stock as expensive and begin looking for alternatives.
This behavior is based more in psychology than on the investing fundamentals, though. When a company undergoes a stock split, the number of outstanding shares rises by the stated ratio. At the same time, the share price is reduced by that same ratio — therefore, the market cap and valuations of the company remain unchanged.
Nevertheless, Chipotle’s management believes that splitting its stock will make it more accessible and appealing to employees and retail investors.
Image source: Getty Images.
Chipotle is a best-in-breed business
I wouldn’t be surprised if you have some trepidation when it comes to investing in a restaurant stock. Macroeconomic factors such as inflation and higher interest rates have taken a toll on consumer discretionary spending. As such, a business that depends on people’s willingness to pay for small indulgences like take-out meals may not come across as the most enticing investment opportunity.
Chipotle has differentiated itself from some of its peers…
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