By Savyata Mishra
(Reuters) – Shares of Chipotle Mexican Grill were up nearly 6% at $2960 premarket on Wednesday after the burrito chain’s board approved a 50-for-1 stock split as the company looks to make the stock less expensive for potential investors.
Shares of the California-based company have rallied to record levels over the past year, powered by strong earnings owing to solid demand for burritos and rice bowls among its relatively wealthier customer base.
A stock split lowers the price of shares without affecting the company’s valuation, making them more affordable for individual investors.
If the split is approved at the upcoming annual meeting on June 6, Chipotle’s shareholders will receive an additional 49 shares for each share held.
The stock closed at $2,797.56 on Tuesday, making it the fourth-highest-per-share value on the S&P 500 index. Its market value was $76.71 billion.
The split, the first in its 30-year history, “will make our stock more accessible to employees as well as a broader range of investors,” said Chipotle’s Chief Financial and Administrative Officer Jack Hartung on Tuesday.
Based on Tuesday’s closing price, the stock would trade at around $56/share after the split. The company has around 27.4 million shares outstanding.
“Chipotle’s stock split should ease liquidity in the stock given how high the share price has risen over the past years. Otherwise, the economics of the business remain just as compelling,” said Jim Sanderson, an analyst with Northcoast Research.
Its forward price-to-earnings multiple (P/E), a common benchmark for valuing stocks, is 49.72, higher than industry peers including Starbucks and McDonald’s that have a P/E ratio of 20.89 and 22.24 respectively.
(Reporting by Savyata Mishra in Bengaluru; Editing by Tasim Zahid)
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