Chipotle Mexican Grill (CMG 0.29%) has completed its stock split, and from its prior price of above $3,000, its shares now trade at a much lighter price tag of around $60. That makes it a lot easier for investors to own full shares of the popular restaurant chain.
Now, stock splits don’t change anything about the underlying businesses that conduct them, but nonetheless, they often generate some extra bullishness. Many stocks’ valuations rise in the weeks and months following a split, in part because the very fact that a stock has risen by enough to justify one is a reflection that the business has been doing well.
With more growth still in the cards for Chipotle, is it possible for this stock to get back to a price above $1,000 again?
Chipotle isn’t done growing
Although it has been a top growth stock to own in recent years, there’s still reason to remain bullish on Chipotle. Not only does the restaurant chain have a track record for generating strong growth even amid challenging economic conditions, but the company is planning to open a lot more restaurants.
This year alone, Chipotle expects to open up to 315 new locations. As of the end of 2023, it had 3,400 restaurants, and eventually, it plans to more than double that figure to 7,000 locations in North America.
That could do wonders for its financials since in the past decade the company has achieved considerable growth on both its top and bottom lines.
CMG revenue and profit growth data by YCharts.
A cheap share price, but valuation is still high
In the past 10 years, Chipotle’s market capitalization has skyrocketed by more than 400%. And with much more growth expected ahead, there’s clearly room for the stock to continue rising.
But the big impediment may be its valuation. While Chipotle’s share price may be low again, it’s the valuation that matters, and that doesn’t change following a stock split. Chipotle still trades at a fairly high price-to-earnings multiple of 67. Although the business is growing, that may still be too high a valuation for many growth investors.
For Chipotle to get back to $1,000, it would need to rise by more than 1,500% from where it is today. While that’s not impossible, it would be a tall task to achieve, and would likely take not just years but decades. And this assumes that the business can continue producing strong margins while also significantly growing its operations. And if it grows to 16 times its current valuation, it would be at a market cap of nearly $1.4 trillion.
Should you buy Chipotle’s stock today?
Chipotle has been an excellent stock to own over the years, but investors should be careful to temper their expectations about its future. This is a much bigger company than it was a decade ago, and high expectations are already baked into its stock price; many investors are even making a point of looking for businesses that could be “the next Chipotle.”
Given its valuation and the growth that investors have come to expect from Chipotle, I would hold off on buying the stock right now, as it could be a bumpy road ahead, especially if the company’s growth plans falter. That’s because as it expands its presence, it may become more difficult for Chipotle to maintain a high rate of profit growth across the entire business.
I wouldn’t rule out the possibility of Chipotle getting back to $1,000, but it likely won’t happen anytime soon. Even getting to $100 may be tough in the near future given how pricey the stock is right now. But if you’re willing to be extremely patient with it, Chipotle can still make for a good long-term investment.
