The concept of fast casual dining dates back to the 1990s, and Chipotle was an industry pioneer. The restaurant chain was founded in 1993, and it grew to 16 locations within five years. By 2006, there were more than 500 Chipotle restaurants, and in 2015, there were over 2,000.
Today, that figure is nearing 3,200 restaurants throughout North America and Europe, with 200 to 300 additional locations planned for 2023. That sort of growth is appealing to investors, especially during these uncertain economic times. So, does that mean Chipotle stock is a buy? And is Chipotle stock going to split?
Is The Fast Casual Industry Growing?
Chipotle’s tremendous growth has a lot to do with characteristics unique to this particular company. However, the increasing popularity of fast casual dining also gets some credit. Fast casual fills a need that was previously unmet. It offers the speed and convenience of fast food without sacrificing as much quality and nutrition.
Across the industry, fast casual chains typically use more fresh ingredients than their fast-food counterparts, and items are made to order – not left in a warming station. They have robust takeout and delivery programs, whether independent or through a food delivery service like DoorDash (NYSE:DASH) or GrubHub, which dramatically expands dining choices for busy individuals and families.
Researchers have calculated the total fast casual market at $125.6 billion for 2019, and they expect a compound annual growth rate (CAGR) of 10.6 percent through 2027. If accurate, that means a fast casual market of $209.1 billion by 2027.
Better still, fast casual operations are maximizing their efficiency through advanced technology. Enhancements like cloud kitchens and kitchen automation platforms promise to increase sales while bringing capital expenditures down and improving profit margins.
As an industry leader, Chipotle is well positioned to benefit from these upgrades, which suggests Chipotle stock will go up. However, investors are curious about the company’s intentions. As of March 2023, Chipotle stock trades above $1,600 per share – a level at which most companies announce a stock split. Is Chipotle stock going to split, or will it reach $2,000 per share in 2023?
Does Chipotle Have A Moat?
North America is awash in Mexican restaurants, from basic fast food franchises like Taco Bell and authentic roadside taco stands to San Diego’s high-end Camino Riviera (try the tempura sea bass topped with edible gold leaf) and New York City’s Cosme (signature dish: Duck Carnitas).
In the fast casual space, Chipotle’s main competition comes from Baja Fresh Mexican Grill, Moe’s Southwest Grill, Qdoba Mexican Eats, and Rubio’s Coastal Grill.
Despite the crowded market, Chipotle has carved out a niche and built an impressive moat that keeps competitors at bay. According to Warren Buffett, that’s crucial. One commonly referenced Warren Buffett quote is, “The most important thing in evaluating businesses is figuring out how big the moat is around the business.”
The most obvious advantage that Chipotle has is a wide selection of customizable menu items that meet the needs of most diners, including those with dietary restrictions or limited food preferences. Meals are available for pickup, delivery, and dine-in, and they are prepared quickly to meet the needs of those juggling tight schedules.
Chipotle has succeeded in building a strong brand, which is an advantage in itself, but that brand also contributes to the company’s primary competitive edge: pricing power. Chipotle is nearly as affordable as cheap fast food, but thanks to its reputation for quality, consumers are willing to pay a little more when necessary.
For example, when the restaurant industry experienced significant challenges during the pandemic, Chipotle had a simple solution. In 2021, the restaurant chain raised prices approximately ten percent to cover new expenses and offset lost revenue. The price increases didn’t drive customers away. In fact, Chipotle continued on its growth trajectory. That’s unusual, which is the magic behind Chipotle’s impressive moat.
Is Chipotle Stock A Buy?
All signs point to a profitable future for Chipotle, and that can only be good for shareholders. Highlights of the 2022 year-end earnings report include:
Total revenue – $8.6 billion (an increase of 14.4 percent year-over-year)
In-Restaurant Sales – 26.4 percent increase year-over-year
Digital Sales – 39.4 percent of total food and beverage revenue
New Restaurants – 236 (total 3,187)
New “Chipotlanes” (drive thru) – 202 (total 571)
Restaurant-Level Operating Margin – 23.9 (an increase from 2021’s 22.6)
Net Income – $899.1 million (an increase over 2021’s $653 million)
Net Income per Diluted Share – $32.04 (an increase over 2021’s $22.90)
Adjusted Net Income – $919.8 million
Adjusted Diluted Earnings per Share – $32.78
Chipotle’s leadership team expressed optimism about the coming year. Plans include the addition of 255 to 285 new restaurants, some of which will include the Chipotlane service.
Overall, the combination of steady growth and a wide moat makes Chipotle a buy.
Will Chipotle Stock Split?
For many retail investors, buying Chipotle shares is easier said than done. Chipotle is in the top ten most expensive US stocks in terms of nominal price – it trades at more than $1,600 per share. That isn’t practical for investors with smaller portfolios. Among other issues, the high value of Chipotle stock can make it difficult to diversify and balance such portfolios.
A number of high-profile companies had stock splits in 2022, including:
Their pre-split prices were similar to Chipotle’s current stock price, so with that in mind, it’s reasonable to wonder whether Chipotle stock is going to split.
Unfortunately, there is no indication that a stock split is under consideration, despite its high price. The company hasn’t split its stock since it started trading publicly in 2006, and it hasn’t indicated any interest in such a change.
Yes, the topic occasionally comes up when business leaders connect with analysts and shareholders, and Chipotle representatives are firm in their statements that splitting stock is way down on their list of priorities.
The good news is that retail investors can still be a part of Chipotle’s growth story. Many brokerage firms offer the opportunity to purchase fractional shares, including Charles Schwab, E-Trade, and Robinhood.
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