When its 2023 fourth-quarter financials were released almost two months ago, Chipotle Mexican Grill(NYSE: CMG) announced results that easily beat Wall Street estimates. But in more recent times, shareholders are excited about a new development.
On March 19, the Tex-Mex restaurant chain announced a massive 50-for-1 stock split. Since then, shares have climbed about 4% (as of April 2), and they are up 27% this year. There’s clearly strong investor interest in this stock right now, driving greater momentum.
Shareholders will vote on the stock split in June at the annual meeting. Does its pending approval make Chipotle a once-in-a-generation investment opportunity?
Cutting the burrito into smaller pieces
It’s critical to first understand what exactly a stock split is. Typically, if a business’s shares perform well, as has been the case with Chipotle, the price rises to an extremely high level. Executives want to reduce the price, so they announce a stock split. Lower nominal stock prices might be more enticing for smaller investors because they can acquire more whole shares, instead of having to buy fractional shares like some brokerages allow.
Should this get approved, every shareholder will receive 49 new shares of Chipotle stock for every single one they already own. Consequently, there will be 50 times more outstanding shares that trade at 1/50th the price.
However, at the end of the day, nothing changes with Chipotle at a fundamental level. A stock split will not change management’s strategy or alter revenue and earnings trajectories.
Is Chipotle stock a buy?
Now that we’ve established the specifics of Chipotle’s stock split, it’s time to turn our attention to the question of whether or not shares make for a smart buying opportunity right now. There are some important factors that we need to consider.
There’s no doubt that the company continues firing on all cylinders. Chipotle reported revenue and earnings per share growth of 14.3% and 38.4%, respectively, in 2023. These two headline figures are significantly higher than they were just five years ago. Chipotle’s results maintain strong financial performance despite ongoing macroeconomic uncertainty.
Key to the company’s strategy, unsurprisingly, is aggressively opening new restaurants. There are currently 3,437 Chipotle locations (as of Dec. 31, 2023), up by 250 from 12 months before. The success of the drive-through setups, known as Chipotlanes, is noteworthy. Management points out that these locations increase new restaurant sales, margins, and returns. They also help strengthen Chipotle’s digital presence.
Over the long term, executives believe there can be 7,000 stores in North America, roughly double today’s footprint. The hope is that these restaurants can generate $4 million in annual sales, up from $3 million in Q4. These forecasts certainly make bullish shareholders very happy.
But investors need to realize that just because a business is posting tremendous results and has bright growth prospects, it doesn’t necessarily mean the stock is a no-brainer buy. Valuation is the missing ingredient that must be closely scrutinized.
After shares have skyrocketed 311% in the past five years, Chipotle is extremely expensive today. The stock trades at a dizzying price-to-earnings ratio of 65.5. Even with impressive fundamentals and a lofty store opening target, the valuation is in nosebleed territory. There is literally no margin of safety for prospective investors, as Chipotle is priced for perfection right now.
Undergoing a significant 50-for-1 stock split definitely grabs the attention of investors. However, that doesn’t make Chipotle a once-in-a-generation investment opportunity. Investors shouldn’t buy the stock right now. Instead, they should wait for a major pullback before even considering adding the business to their portfolios.
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TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
