Investors wondering where Chipotle Mexican Grill's (NYSE: CMG) stock price will go from here should be comforted to know this market will likely continue to rise. That is because the meteoric rise in the share price is driven by fundamental factors, including growth, margin, and an outlook for accelerating growth as the international expansion gains momentum. Because a stock split does not affect the underlying business, fundamentals are intact, and the stock price trend should continue.
What does the stock split mean for Chipotle and its investors? Simply put, it means there will be more shares in the market, but the ownership structure will remain unchanged, and business will continue as it has. Each person holding a share of CMG on 6/18 (yes, that’s right, the record date has passed, so it is too late to get into the name before the split) will hold 50 shares on 6/26. That’s true even if the owner of record on 6/18 sells on 6/19; whoever bought the shares will have 50x as many on June 26th.
Chipotle Split Its Stock to Increase Ownership and Reduce Market Volatility
The purpose of the split is to make the stock more accessible to smaller and retail investors, including the company’s employees. Trading above $1,000 per share, the price tag can be intimidating for smaller investors, although a 50% gain in $1,000 of a $1,000 stock equals a 50% gain in $1,000 of a $20 stock. The takeaway is that CMG’s stock split will open up a new class of investors and widen ownership of the stock, thereby supporting its price action and theoretically reducing the volatility. A broad base of buy-and-hold investors is known to reduce stock volatility because fewer holders are ready to sell at the drop of a headline.
And there is precedent to support the claim that this stock will continue to rise. Chipotle isn’t the first company to issue a split, nor the first this year, and those that have come before ended in gains for investors. NVIDIA (NASDAQ: NVDA) is among the most prominent this year, issuing a 10-for-1 split earlier this month. Its price action surged to a new high and has corrected since, but the pullback is a buying opportunity in light of the analysts. Analysts are leading NVIDIA to new highs, and they are doing the same for Chipotle.
Analysts Are Leading Chipotle Higher
The consensus estimate for CMG stock assumes the market is fairly valued, trading at nearly $3250. However, the trend in the price target is upward, and the sentiment firm at Moderate Buy suggests upward momentum will continue. The most recent revisions came out within the week, just days before the split, and include reiterated and raised targets that put the market in the range’s high end. The high target of $3880 ($77.75 split-adjusted) assumes only a small 5% to 20% upside but will likely move higher as the year progresses because of business performance.
The highlights from the last earnings report include top and bottom line strength in addition to industry-leading performance. The 14% top-line growth is triple the gain from fast-food leader McDonald’s (NYSE: MCD), and market-leading performance should continue. The company is leaning hard into store-count growth, building out the network of Chipotlanes, and widening its margin. It is also embarking on its international expansion. The company now has about 65 international locations, about 2% of its footprint, and plans to accelerate international growth in the coming years. That opportunity could more than double the operations from 2024 levels over the next ten years.
Chipotle Pulls Back Into a Mouth-Watering Buying Opportunity
CMG shares peaked earlier this month and have since corrected to lower prices. The caveat for bears is that the pullback aligns with the uptrend, and the market shows support at a critical level. The critical level coincides with highs set in May and the 30-day moving average, showing short-term traders are still bullish on this market. The stock price may come under pressure immediately after the split is complete due to profit-taking and opportunistic capital raising, but it shouldn’t last long.
