Roughly two years ago, one of the highest-priced stocks on the market, Chipotle Mexican Grill (NYSE: CMG), got a whole lot cheaper.
The restaurant chain stock, which had been trading at more than $3,200 per share as of June 25, 2024, underwent a 50-for-1 stock split on June 26, 2024. That meant that for every share investors held at the time, they received 49 more shares as the shares were split evenly 50-for-1.
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The historic split was designed to make the stock more accessible to new investors and Chipotle employees, bringing the share price down to about $66 per share.
Typically, a stock split generates investor buzz, more investments, and a spike in the stock price. Many investors thought Chipotle stock would get a bump as it had been red hot at the time, rising about 450%, or 19% on an annualized basis, over the previous 10 years as the chain had been rapidly expanding.
But that was not the case.
Cheaper, but still expensive
As it turned out, that 50-for-1 stock split was not a launching pad but a peak for Chipotle stock.
One thing some investors at the time might have been skeptical of is its high valuation, as Chipotle stock was trading at around 61 times earnings back in June 2024. Even though the share price came down in the split, the valuation didn’t change, and the stock remained highly overvalued.
Since June 26, 2024, Chipotle stock has plummeted from that split-adjusted price of $66 per share, an all-time high, to just about $31 per share now, a total decline of about 53%, or 31% per year on an annualized basis.
So, if you had invested $10,000 in Chipotle stock at that stock-split price of $66 per share, you would have bought about 152 shares. That $10,000 investment today would be worth less than half that amount, about $4,750.
Is Chipotle finally a buy?
Chipotle’s two-year decline is due to several factors, primarily its high valuation. But also, the company went through a leadership transition and had been plagued by declining year-over-year same-store sales.
Chipotle had seen less foot traffic as consumers have cut back on eating out due to rising prices and economic stresses. Also, inflation has increased the price of beef, which has impacted Chipotle’s bottom line.
But in the first quarter, things started to shift as same-store sales increased 0.5% and revenue rose 7%, year over year. The company is also aggressively opening more new restaurants, which should boost sales. It plans to open 350 to 370 new restaurants in 2026, a record that beats last year’s 345 new restaurant openings.
