Sometimes, you can’t help but do a double-take…
I experienced this earlier this week when Chipotle Inc. (NYSE: CMG) executed its 50-to-1 stock split.
It’s like the popular fast-casual dining chain saw Nvidia Corp.’s (Nasdaq: NVDA) 10-to-1 split earlier this month and said, “Hold my beer!”
With so much artificial intelligence (AI) talk (and we’re just as guilty here in Money & Markets Daily), Chipotle has snuck under the radar in 2024. And that’s a little crazy considering the size of this company and that CMG shares are up almost 40% this year alone, more than doubling the S&P 500’s gains!
The discourse makes sense. AI is innovating across a broad spectrum of industries, offering new and exciting investment opportunities all along the way. At the same time, Chipotle has kept to its tried-and-true model of rolling burritos for the masses. It’s a solid business model, but a compelling story? Eh…
That’s when Green Zone Power Ratings shines brightest! It gives us a chance to check on the health of a stock following market events like this.
What’s Behind Chipotle’s (or Any) Stock Split
Chipotle’s stock split isn’t new news. The company announced its move during its latest quarterly call on June 6. At that time, CMG was trading around $3,100 to $3,200 per share.
Now, with the stock trading around $63 after the 50-to-1 split, Chipotle is hoping to reel in investors who couldn’t stomach that massive price tag.
And it’s not the first in 2024. This year, there have already been 10 announced large-cap forward stock splits, more than last year’s nine.
There’s some risk of higher volatility now that the stock is trading at a much more reasonable price.
But with so many brokerages offering fractional share purchases now, it’s easier than ever to gain exposure to these stocks trading for thousands of dollars per share.
Our chief research analyst, Matt Clark, said it best:
Individual stock splits have little bearing on the overall performance of the broader market. However, they do suggest more confidence for forward-splitting companies in the months and years ahead.
Let’s see what Green Zone Power Ratings says…
Chipotle Is “Bullish” — Here’s Why
Post-split, Chipotle stock rates a “Bullish” 80 out of 100. That means it should outperform the broader market by 2X over the next 12 months.
CMG’s Green Zone Power Ratings in June 2024.
Again, we’re talking about a fast-casual Mexican restaurant here!
Momentum is solid at 94. The stock has been on a consistent upward trajectory since hitting a 52-week low in October 2023.
From that low, CMG has gained 74%.
On Quality, CMG scores a strong 93. Its returns on assets, equity and investment are all more than triple the hospitality services industry averages. Chipotle has a 44.4% return on equity, compared to the industry average of just 7.3%.
But where CMG really shines as a stock is on Growth, where it scores a 99 … putting it in the top 1% of all stocks we rate on the factor.
CMG has a one-year annual earnings-per-share growth rate of 38.4%. Its sales growth rate is 14.3%.
Where Chipotle struggles is on Value (4). This is due to the stock trading with a price-to-earnings ratio of 70.3 — nearly three times higher than the industry average. Its price-to-sales ratio is more than five times higher than the industry average as well.
Volatility may increase due to the recent stock split. We saw that with CMG’s 5% decline on Thursday (the stock was trading flat out of the gates this morning). But its “Bullish” Green Zone Power Ratings show this stock should continue crushing the market from here.
Is anyone else getting hungry?
Until next time,
Chad Stone
Managing Editor, Money & Markets
