Chipotle (NYSE:CMG) has long dominated the fast-casual restaurant space, leading to blistering growth. Subsequently, its success saw CMG stock rise well beyond the $3,000 per-share price level, making it inaccessible to retail investors who lack access to fractional share ownership. As a result, management will implement a 50-for-1 share split. While the move should boost accessibility, valuation concerns linger.
According to the company’s press release, CMG stock will begin trading on a post-split basis on June 26. The move is notable as it’s one of the biggest equity splits in the history of the New York Stock Exchange, the company claims. Prospective investors seeking to acquire Chipotle prior to the split should note that the record date is June 18. Further, the split’s distributions will occur after the market closes on June 25.
Chipotle’s Chief Financial Officer and Administrative Officer Jack Hartung laid out the reasoning for splitting CMG stock. “We believe the stock split will make our stock more accessible to our employees as well as a broader range of investors. With this historic decision, we’ll be better able to reward our team members and empower them to have ownership in our company.”
Share splits don’t fundamentally change the underlying business. However, because they enable wider accessibility due to the lower per-share price, over time, splits can spark greater demand.
Pros and Cons to Buying CMG Stock Pre-Split
Investors have an important decision to make regarding CMG stock and its upcoming split. By acquiring shares now, the idea is that as retail investors recognize the bullish opportunity (thanks to Chipotle’s dominance of its sector), sentiment will rise. The fast-casual restaurant has already gained around 43% year-to-date with a four-digit price tag.
Another positive for CMG stock is the projected revenue. Analysts believe that revenue may expand from $9.87 billion in 2023 to $19.24 billion in 2028. That comes out to a compound annual growth rate (CAGR) of 14.28%. This projection outpaces the expected CAGR of the U.S. fast-casual restaurant space, which lands at 12.09%.
However, not everyone is convinced about CMG stock. In particular, social media users have broadcasted their concerns that the portions offered at Chipotle restaurants are getting smaller. Simultaneously, prices continue to rise.
To be fair, analysts right now believe there is little to no impact from social media. Still, in a hotly contested post-pandemic consumer environment, bad coverage can accelerate quickly. And that raises concerns about the valuation of Chipotle stock.
Presently, shares trade at nearly 60x forward earnings, which is well above the sector median of 16.46x. For comparison, McDonald’s (NYSE:MCD) trades at a forward earnings multiple of 21.24x. The Golden Arches also pays a dividend, while Chipotle does not.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
