The market appears to be brushing off a key announcement from Chipotle Mexican Grill (NYSE:CMG). Indeed, shares of CMG stock are down more than 2% at the time of this writing after the company announced a 50-for-1 stock split. This stock split will still need to be ratified by shareholders during the company’s shareholder meeting scheduled for June 6. But by all accounts, this should be good news for the company.
Stock splits reduce the price per share of a given company, allowing for a more diverse and broader investor base to step into the stock. Given that many brokerage platforms and trading houses still require investors to buy full shares, greater retail ownership and the ability for the company to use CMG stock for programs such as employee compensation are generally viewed positively by the market.
Let’s dive more into what was announced — and why the market may be reacting the way it is today.
CMG Stock Down on Massive Stock Split Announcement
First and foremost, it’s important to acknowledge that most stocks are down today. Broader indices are seeing selling pressure seemingly tied to macro issues. Thus, some of the downside we’re seeing in CMG stock can be explained away.
However, I would have expected to see a massive surge in CMG stock following this announcement. Retail investors tend to like this news, as buying more shares can simply make one feel like a bigger owner of a company, even if it mathematically doesn’t matter. Additionally, there are some positive reasons why companies carry these kinds of splits out, as I mentioned earlier.
If this vote is successful, 49 additional shares will be issued for every 1 share that investors currently hold as of June 26. Indeed, it will certainly be interesting to see what happens if and when this vote is approved and the stock trades post-split.
At roughly $3,070 per share currently, shares of CMG should trade around the $60 level following the split. For most investors, that’s a much more reasonable price and could simply be among the catalysts to take this stock higher this year. Chipotle is one of the top restaurants seeing strong growth in 2024 and a name I’ll watch closely and provide updates on moving forward.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
