Is Chipotle a once-in-a-generation investment opportunity ahead of its 50-for-1 stock split?

When the fourth quarter results for 2023 were announced about two months ago, Chipotle Mexican Grill (CMG 1.73%) The company announced results that easily exceeded Wall Street’s expectations. But recently, shareholders have been excited about new developments.

March 19th, Tex-Mex restaurant The chain announced Large-scale 50-1 stock split. Since then, the stock is up about 4% (as of April 2) and 27% this year. Investor interest in this stock is clearly strong right now, and momentum is building.

Shareholders are expected to vote on the stock split at the annual general meeting in June. Pending approval, could Chipotle represent a once-in-a-generation investment opportunity?

cut the burrito into small pieces

First, it’s important to understand what exactly a stock split is. Typically, when a company’s stock is doing well, as was the case with Chipotle, the price rises to very high levels. Management wanted to lower prices and announced a stock split. A lower nominal stock price may be more attractive to small investors because they can acquire more whole shares without having to buy fractional shares as with some brokerages.

If approved, each shareholder would receive 49 new Chipotle shares for every Chipotle share they already own. As a result, 50 times more shares outstanding will trade at 1/50th the price.

But at the end of the day, on a fundamental level, nothing has changed for Chipotle. Stock splits do not change management’s strategy or change the trajectory of revenues or profits.

Is Chipotle stock a buy?

Now that the details of Chipotle’s stock split are clear, it’s time to turn our attention to the question of whether the stock is a smart buying opportunity right now. There are several important factors to consider.

There is no doubt that the company continues to fire on all cylinders. Chipotle reports earnings; Earnings per share In 2023, they are expected to grow by 14.3% and 38.4%, respectively. These two key numbers are up significantly from just five years ago. Chipotle continues to have strong financial performance despite continued macroeconomic uncertainty.

Naturally, key to the company’s strategy is to aggressively open new restaurants. Currently, Chipotle has 3,437 stores (as of December 31, 2023), an increase of 250 stores compared to 12 months ago. The success of the drive-thru facility known as Chipotle Lane is notable. Management notes that these locations will increase sales, profits, and profits for the new restaurants. These will also help strengthen Chipotle’s digital presence.

Over the long term, management believes there could be 7,000 stores in North America, approximately double the current store footprint. Annual sales for these restaurants are expected to reach $4 million, up from $3 million in the fourth quarter. These predictions will certainly make bullish shareholders very happy.

However, investors need to be aware that just because a company has an impressive track record and positive growth prospects doesn’t necessarily mean they can buy the stock without hesitation. Valuation is the missing ingredient that requires close scrutiny.

Chipotle stock is now extremely expensive after its stock price soared 311% over the past five years.Stock prices are trading rapidly stock price earnings ratio 65.5’s. Despite great fundamentals and lofty store opening goals, valuations are in nosebleed territory. Chipotle is currently priced for perfection, so there is literally no margin of safety for prospective investors.

A large stock split of 50-for-1 will definitely attract the attention of investors. But that doesn’t mean Chipotle is a once-in-a-generation investment opportunity. Investors shouldn’t buy stocks right now. Rather, you should wait for a significant pullback before considering adding the business to your portfolio.