Is Chipotle Stock a Buy After Its Historic Stock Split?

Restaurant chain Chipotle Mexican Grill (CMG 1.90%) The company capped its spectacular stock price rally this year by splitting its stock 50-for-1 in June, one of the largest stock splits in New York Stock Exchange history.

Explaining why the company did so, CFO Jack Hartung said: “We believe the stock split will make our shares more accessible to our employees as well as a broader range of investors.”

With the historic stock split having taken place, is it time to invest in Chipotle? Here's a look at the company to answer that question.

Chipotle's commercial success

Chipotle's stock price has already risen substantially in recent months, nearly doubling from its 52-week low of $35.37 last October to its high of $69.26 in June. This is a testament to the company's exceptional financial performance.

In 2023, Chipotle generated $9.9 billion in revenue, a 14% increase from $8.6 billion in 2022. Additionally, its net income increased 37% year over year to $1.2 billion. These results propelled Chipotle's diluted earnings per share (EPS) in 2023 to $44.34, a 38% increase from $32.04 in the prior year.

Last year's success continued into 2024. Its first-quarter revenue reached $2.7 billion, up 14% from the previous year, while net income increased 23% to $359.3 million, compared to $291.6 million in 2023. Chipotle's first-quarter EPS increased 24% from the previous year to $13.01.

To put this performance into context, the competitor Yum! Brandsowner of several restaurant chains, including Pizza Hut and Taco Bell, posted revenue of $1.6 billion, net income of $314 million and EPS of $1.10 in the first quarter. Yum! Brands is an interesting competitor to compare because Chipotle CEO Brian Niccol was formerly the CEO of Taco Bell.

Chipotle's Sales Strategy

Niccol, who took over as CEO in 2018, summed up the strategy used to produce Chipotle's strong financial results by saying, “Our strong sales trends were fueled by our focus on improving restaurant performance.”

This strategy helped Chipotle post a 7% increase in sales in the first quarter compared to the previous year. Same-store sales growth is critical to the company's ability to grow revenue, making it important to build customer flow.

Chipotle is using a variety of tactics to increase the number of customers it can attract to each location. For example, the restaurant chain makes it easy for customers to place orders online through its website or mobile app. Digital sales accounted for 37% of the company's food and beverage revenue in the first quarter.

Another strategy Chipotle is to pair online orders with a new store format called Chipotlane. A Chipotlane is a drive-through specifically for customers who come to pick up their online orders.

This evolution of the traditional drive-through concept allows customers to quickly and easily pick up their food, further increasing throughput per location. Chipotlane launched in 2018 under Niccol's leadership.

The company described the success of the Chipotlane format by saying, “New restaurant openings that offer this digital pickup route have demonstrated higher volumes and higher yields than a traditional Chipotle restaurant format.” The company expects at least 80% of new stores in 2024 to include a Chipotlane.

Picking Chipotle Stocks

Another driver of Chipotle's revenue growth is new restaurant openings. In the first quarter, the company opened 47 restaurants and is targeting a total of at least 285 new restaurants by 2024. Last year, it opened 271 restaurants.

Chipotle's goal is to reach 7,000 restaurants in North America. At the end of the first quarter, the company was about halfway to that goal with nearly 3,500 restaurants.

Thanks to new store openings and increased same-store sales, Chipotle's revenue has increased significantly under Niccol at the helm, more than doubling since he began his tenure.

Data by YCharts.

Niccol's leadership, Chipotle's success in increasing traffic, and its store expansion plans position the company for continued revenue growth, which could increase the stock's growth potential. In fact, the current consensus among Wall Street analysts is an Overweight rating with a median price of $67.69 for Chipotle stock.

With shares down from their 52-week high in June following the historic stock split, now is a good time to buy Chipotle stock.