CMG Is Splitting Next Month, Is It Time to Buy?

Chipotle Mexican Grill (CMG) trades north of $3200 per share, making it out of reach for most small investors. 

However, it’s scheduled to do a 50-1 stock split on June 26, 2024. 

If it were to happen at today’s price, we would expect the stock to trade at approximately $64 per share. 

Stock splits don’t affect a company’s fundamental value but can influence its stock price due to perceived accessibility and psychological factors. 

For example, NVIDIA (NVDA) had a 4-for-1 stock split in July 2021. At the time, it was trading at $750 per share, but it opened around $188 per share after the split, and it is now trading at over $900 per share. 

While CMG is outside the tech sector, the heavy search volume by financial pros picked up by our TrackStar data could indicate they expect a similar run.

But is that enough to invest in the company?

Chipotle Mexican Grill’s Business

Chipotle Mexican Grill, or CMG, is a fast-casual restaurant chain specializing in tacos and Mission-style burritos, emphasizing fresh, sustainability-sourced ingredients and customizable meals. 

CMG’s biggest revenue driver is its in-store sales, which saw significant growth in the first quarter of 2024. 

In-store sales grew by 19% over the previous year, indicating strong customer traffic and effective improvements in operational throughput. 

Digital sales accounted for 37% of the total sales during this period. 

Chipotle reported a revenue increase of 14% to $2.7 billion, with comparable sales growing by 7%. The company’s profitability also strengthened, with a restaurant-level margin of 27.5%, an increase of 190 basis points from the previous year.

This bucked the trend of slowdowns reported by McDonald’s (MCD) and Starbucks (SBUX) in their latest earnings reports.

In terms of expansion, Chipotle continues its ambitious growth trajectory, opening 47 new locations in the quarter, including 43 Chipotlanes (drive-thru lanes), reflecting its strategic priority to enhance access and convenience.

At the end of the first quarter of 2024, CMG reported having 3,479 restaurants. 

Financials

Source: Stock Analysis

Over the past decade, Chipotle Mexican Grill has consistently demonstrated robust financial growth, marked by significant year-over-year revenue increases. 

For instance, in 2023, the company’s revenue was $9.8 billion, representing a 14.3% increase from the previous year. 

This growth trajectory is underpinned by Chipotle’s strategic expansion and innovation in its offerings. 

Notably, the company’s focus on enhancing customer experience through digital sales channels and the introduction of ‘Chipotlanes’ has contributed to its strong performance. 

Even in challenging years, Chipotle has maintained a positive growth trend, with its least impressive year still showing a revenue increase, underscoring the company’s resilience and effective management. 

Operating margins have also seen improvement, reflecting efficient operations and prudent cost management. 

This financial stability is complemented by a significant net income increase, which rose 36.7% to $1.2 billion in 2023, highlighting Chipotle’s profitability and operational success.

Valuation

Source: Seeking Alpha

Chipotle Mexican Grill’s valuation stands out, particularly when compared against its peers. 

Its P/E Non-GAAP (TTM) ratio is 67.0x, significantly higher than McDonald’s 22.4x and Starbucks at 20.0x, indicating much steeper price investors are willing to pay for each dollar of Chipotle’s earnings.

It’s further reflected in its price-to-sales ratio, which is considerably higher than that of McDonald’s, Starbucks, and Domino’s Pizza (DPZ), indicating strong market expectations for its revenue growth. 

Growth

Source: Seeking Alpha

CMG has shown a significant annual revenue growth rate of 13.6% and anticipates a forward growth of 14.2%, outpacing both Starbucks and McDonald’s. Over three years, CMG’s Compound Annual Growth Rate (CAGR) in revenue stands at 17.35%, only surpassed by Wingstop (WING) at 23.5%. 

Chipotle also leads in EBITDA growth, with a 20.5% year-on-year increase and a forecast of 23.3% for the coming year.

This growth is also reflected in its leveraged free cash flow, which has skyrocketed by 97.7% over three years, demonstrating Chipotle’s superior ability to generate cash compared to its competitors. 

Profitability

Source: Seeking Alpha

CMG demonstrates strong profitability with a Gross Profit Margin of 40.9%, outperforming Starbucks and Domino’s but trailing McDonald’s and Wingstop. 

Its Net Income Margin stands competitive at 12.7%, closely aligning with Starbucks and surpassing Domino’s, highlighting CMG’s efficient asset utilization within the fast-casual dining sector.

Our Opinion 8/10

Chipotle’s upcoming 50-for-1 stock split will lower the individual share price from its current high levels, making its shares more accessible to a broader range of investors. 

This strategic move could draw in more investors, pushing up share prices.

Plus, Chipotle is pushing growth while its peers struggle, making it a great relative strength play.

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