Chipotle Mexican Grill (NYSE: CMG), known for its fast-casual dining experience and focus on fresh ingredients in burritos and salads, recently executed a significant 50-for-1 stock split. This move drastically increases the number of shares outstanding, meaning for every single share previously held, investors now own 50. The primary intention behind such splits is to make the stock more accessible to retail investors by lowering the per-share price. This marks the first stock split for Chipotle since its initial public offering, aiming to broaden its investor base. While a stock split itself doesn’t inherently increase the company’s value, it’s often interpreted as a positive signal from management, indicating confidence in future performance.
Prior to the split, CMG stock closed at nearly $3280 on Tuesday, June 25th. Following the split, the stock began trading at approximately $66 per share on June 26th. Our analysis at Trefis has adjusted Chipotle’s valuation to $66 per share post-split, down from a pre-split valuation of $2794. This revised target is based on an expected earnings per share (EPS) of $1.12 post-split and a price-to-earnings (P/E) multiple of 58.8x for fiscal year 2024, aligning with the current market price. We also anticipate Chipotle’s revenue to reach $11.4 billion for fiscal year 2024, representing a robust 15% year-over-year increase. Year-to-date, CMG stock has already demonstrated impressive growth of 44%.
In contrast, a key competitor, McDonald’s (NYSE: MCD), has seen its stock decline by 13% since the start of the year. Chipotle’s positive momentum can be attributed to several factors, including expanding restaurant-level operating margins, innovative menu offerings, strategic price adjustments, and successful execution of its digital initiatives. The stock split announcement has further contributed to this positive trajectory.
CMG Stock Performance: A Deeper Dive
CMG stock has experienced substantial gains, soaring 115% from around $30 in early January 2021 to its current level of approximately $66. This compares favorably to the S&P 500, which grew by about 45% over the same three-year period. However, this growth hasn’t been linear. In 2021, CMG stock returned 26%, followed by a -21% return in 2022, and a strong rebound of 65% in 2023. Interestingly, when comparing these figures to the S&P 500’s returns of 27% in 2021, -19% in 2022, and 24% in 2023, it’s evident that CMG underperformed the S&P 500 in both 2021 and 2022.
The Challenge of Outperforming the Market
Consistently outperforming the S&P 500, across various market conditions, has proven challenging for many individual stocks in recent years. This includes major players in the Consumer Discretionary sector like Amazon (AMZN), Tesla (TSLA), and Home Depot (HD), as well as tech giants such as Alphabet (GOOG), Microsoft (MSFT), and Apple (AAPL). Conversely, the Trefis High Quality Portfolio, a curated collection of 30 stocks, has consistently outperformed the S&P 500 each year during the same period. This outperformance highlights a key principle: as a group, stocks within the HQ Portfolio have delivered superior returns with less volatility compared to the broader market index, offering a smoother investment journey as evidenced in the HQ Portfolio’s performance metrics.
Given the current macroeconomic uncertainties, characterized by high oil prices and elevated interest rates, the question arises: could CMG potentially face similar headwinds as in 2021 and 2022 and underperform the S&P 500 over the next year? Or is it poised for continued strong growth?
Positive Q1 Earnings and Future Growth Catalysts
Chipotle’s first-quarter earnings report exceeded analyst expectations for both revenue and profit. Average restaurant sales increased by 7% year-over-year to $3.1 million in Q1, even with the addition of 47 new restaurants during that period. The company demonstrated healthy sales and profitability growth in Q1, signaling positive momentum for the Tex-Mex chain. Overall revenue for Q1 grew by 14% year-over-year to $2.7 billion, driven by a 7% increase in comparable restaurant sales (sales from locations open for at least 13 months). Furthermore, earnings per share surged by 27% year-over-year to $13.37 in Q1.
Digital sales remain a significant strength for Chipotle, representing nearly 37% of the core food and beverage business in Q1, even as in-person dining returns. Digital orders are typically higher-margin sales, positioning the company favorably for sustained profit growth in the long term. Chipotle’s rewards program, launched in Q1 2019, is also gaining traction, boasting an impressive 40 million members as of Q1 2024. This loyalty program encourages repeat business by allowing members to earn points on purchases redeemable for food.
Looking ahead to the full year 2024, Chipotle anticipates mid-to-high single-digit growth in comparable restaurant sales, assuming current sales trends persist. The company plans to open 285 to 315 new restaurants in 2024, with over 80% featuring Chipotlane drive-thru options, further expanding accessibility and convenience for customers.
Peer Comparison and Investment Considerations
Analyzing Chipotle’s performance relative to its peers provides valuable context. Our CMG Peers comparison highlights how Chipotle stacks up against competitors across key metrics. For broader industry comparisons, our Peer Comparisons tool offers insights across various sectors.
In conclusion, while the stock split makes CMG shares more accessible, investors should consider a comprehensive view of the company’s performance, growth drivers, and market comparisons to make informed decisions. Chipotle’s strong Q1 earnings, digital sales momentum, and expansion plans present a compelling growth narrative. However, its historical underperformance against the S&P 500 in certain periods and the uncertain macroeconomic climate warrant careful consideration. Comparing CMG to peers like McDonald’s further refines the investment landscape, allowing for a more nuanced understanding of its market position and future potential.
