Evaluating Chipotle Stock in Light of Upcoming Stock Split

Chipotle Mexican Grill's (CMG 0.07%) stock performance has been striking, especially considering the climb from a 52-week low of $1,768.64 to a peak of $3,260 on May 10. In light of their anticipated 50-for-1 stock split set for June 26, following their announcement on March 19, the investment appeal of Chipotle is on the rise.

Strategic Business Growth

Chipotle has been pushing for growth with a target of hitting 7,000 North American restaurants. With 3,479 already in place as of the first quarter, there’s still significant room for expansion. Part of this strategy includes the new 'Chipotlanes' concept—a drive-through service for quick online order pickups—representing the drive to optimize customer flow through their locations. The plan for 2024 includes the opening of at least 285 new stores, 80% of which will be Chipotlanes, underscoring the company's focus on efficiency and convenience.

Stellar Revenue Growth

Indeed, Chipotle's revenue streams are strong, with a 14% jump in the first quarter to $2.7 billion, attributing to 255 store additions and a 7% increase in same-store sales. Their adept use of technology, such as a rewards program and digital marketing initiatives through their app and website, resulted in digital sales accounting for 36.5% of their Q1 food and beverage revenue.

Financial Health

Chipotle's financials are robust, with a 23% year over year rise in net income in Q1. A highlight is the improvement in restaurant-level operating margin, which increased from 25.6% to 27.5%. This indicates effective cost management alongside revenue growth. Earnings per share (EPS) also saw a notable 24% increase over the prior year. Compared to industry giants like McDonald's, Starbucks, and Yum! Brands, Chipotle's diluted EPS has consistently led the pack.

Analysts have given Chipotle an overweight rating, signaling an optimistic outlook, with a median share price target of $3,350, suggesting potential growth from its current standing. Despite Chipotle's recent pullback from its 52-week high, their continuous innovation and solid performance positions the stock as a compelling buy for the long haul, regardless of the timing relative to the upcoming stock split.

As the stock split approaches, it's crucial to understand that while the split doesn't change the essential value of an investment, it does make the shares more accessible to a broader range of investors by lowering the price point per share post-split. Thus, whether investing before or after the split, the company's strong fundamentals remain a draw for potential investors.

Chipotle, Expansion, Performance