Chipotle Stock Price After Historic Split: Challenges and Future Outlook

TradingKey - Chipotle Mexican Grill Inc. (CMG) is a public company that performed an unprecedented stock split on the date of June 29, 2024. The aim of this split was to increase liquidity and decrease common stock prices by increasing the availability of common stocks to a wider range of investors; nonetheless, subsequent to the stock split, Chipotle's stock has declined from the stock split date due to general economic conditions and an overall decrease in demand by consumers for Chipotle. Investors are now left with questions as to whether Chipotle can return to its previous growth rate and whether or not it can continue to justify its pricing premium.

History of Stock Splits

On June 26, 2024, Chipotle Mexican Grill Inc. executed a Stock Split 50-for-1 due to the action of their Board and became the first company in the history of the New York Stock Exchange (NYSE) to accomplish such a significant number of shares. The main reason for executing this Stock Split was to provide to all of our Individual Investors and Employee Investors the opportunity to buy a share below the Market Price (the price at which they were trading before the Stock Split).

While several companies in the restaurant industry and many other industries have not executed any Stock Splits since being incorporated, Chipotle’s Stock Split is the largest Stock Split to occur within the NYSE. Although Stock Splits do not ultimately change the fundamentals of a company, they can have an effect on how a company’s stock is traded and to broaden the potential base of both institutional and retail investors, particularly in the case of an established and high-growth brand, such as Chipotle.

Chipotle: Strategies for Growth 

Chipotle's growth strategy has focused on opening more locations to improve their footprint worldwide.

They currently have approximately 3900 locations around the globe and anticipate opening 350 to 370 more locations during 2026. 

With the opening of their first store in Mexico, they are also able to establish a global presence through entering different markets.

Although fast-casual dining has shown a decline in visitations, the increase in e-commerce buying as a result of customer loyalty program purchases creates offsets to the decline in visitation.

The next decade will be centered on Chipotle's growth, particularly regarding new restaurant openings, as well as research that indicates significant growth of sales through the Food Service Sector of Chipotle.

Chipotle has a Declining Stock Price and Continued Decline in Sales Growth for Index Performance

While continuing to grow, Chipotle's stock price has decreased dramatically due to market/index pressures and shifts in customers' purchasing behavior. 

In 2025, Chipotle's stock price is expected to decline 33-39% from the peak of the stock price.

Same-store sales have continued to weaken throughout the past several quarters with several quarters of flat to slightly negative comparable sales noted and have shown a decrease in foot traffic.

Rising costs (many of which include the cost of beef and labor) are putting increases on organizations, including Chipotle’s. Small menu price increases have been introduced, and a continuous desire for Chipotle to maximize the value provided to consumers has been established by management.

As consumer discretionary spending continues to slow, especially among younger consumers who have been the foundation of the company’s growth to date, the potential for continued traffic growth has been readjusted.

Market Trends Affecting Valuation

Since splitting CMG shares into 15 separate pieces, the company's shares have traded at seemingly elevated levels (i.e. 50X forward EPS). That said, the stock has fallen dramatically from those levels and therefore many investors may be getting better value today than they were prior to the company’s stock price decline. As noted by the Motley Fool, CMG's forward P/E ratio now sits at a multi year low – signalling to potential long-term owners that now is time to collect value on an enduring basis.

Risks Associated with Industry and Consumer Demand

There are two central risk areas that have led investors to be very cautious regarding their investments in a restaurant:

Traffic Patterns and Same-Store Sales Trends: Extended periods of flat or falling same-store sales demonstrate that Chipotle's pricing on the menu and strength of its brand have not compensated for decreased customer visits, given economic pressures being placed on consumers due to a downturn in the economy.

Macroeconomic Pressure on Consumers: Similar macro factors to the entire restaurant industry demonstrate the challenges for restaurants with regard to decreasing consumer spending on away-from-home dining, which has become increasingly discretionary in the fast-casual "slop-bowl" category. This macro pressure contributed to one of the largest single-day stock price declines seen at any time in the last ten years.

Post-Split Valuation and Growth Ambitions: Investor Implications 

Long-Term Potential: For investors with a longer-term investment outlook (greater than one year), Chipotle's ongoing restaurant growth, international expansion, and digital ecosystem could create considerable new revenue in the future, especially if same-store sales grow back and operating margins recover. 

Valuation Play: The sharp sell-off has opened up longer-term investment opportunities for those who see the stock split as a structural increase in liquidity, without being the only catalyst for creating value. Valuation multiples are now much more in line with expected near-term operating performance. 

Short-Term Risks: Until Chipotle is able to demonstrate consistent same-store sales growth and margin stabilization, continued near-term volatility will likely persist as sentiment will be affected more by fundamental economic conditions than by changes to a company's capital structure.

Conclusion

Although CMG's long term growth story is alive and well with continued geographic market expansion and brand strength, the next growth period for CMG is likely to be driven by demonstrable increases in customer visits coupled with margin improvement rather than through structural changes to the capital structure (e.g. stock splits).