With Chipotle Mexican Grill (NYSE:CMG) stock, investors are about to get a real-life lesson on the difference between “more cost-effective” and “actually low cost.” In spite of everything, while stock splits can definitely make an asset easier to suit into one’s portfolio, they don’t routinely make a stock a bargain.

Still, with Chipotle replenish 5% to six% in pre-market trading today, short-term traders are clearly enthused, no matter whether the stock’s a bargain or not. It’s an indication of the times perhaps, as some investors view all news nearly as good news — even when valuations aren’t ideal.

Splitting CMG stock into bize-size pieces

Let’s start off with the need-to-know facts. Chipotle’s board of directors just approved a 50-for-one split of the corporate’s common shares.

As Chipotle Chief Financial and Administrative Officer Jack Hartung points out, “That is the primary stock split in Chipotle’s 30-year history.”

It’s amazing if you really give it some thought that Chipotle took so long to separate its stock. CMG stock has traded at over $1,000 per share because the summer of 2020 and is currently almost $3,000 a share.

Nonetheless, I suppose it’s higher late than never. After all, the rationale for the stock split is to make the shares more cost-effective and due to this fact more appealing to investors. As Hartung put it, the stock split “will make our stock more accessible to employees in addition to a broader range of investors.”

The stock split isn’t official yet because it still requires shareholder approval at Chipotle’s upcoming annual meeting, which is scheduled for June 6. Nevertheless, in light of this morning’s 6% share-price jump, it definitely appears that Chipotle’s stockholders will approve the split.

Now’s a superb time to clear up just a few things. To start with, the split signifies that shareholders will receive 49 additional shares for every share held, not 50. If all goes in line with plan, those shares can be distributed after the market closes on June 25, and CMG stock will trade on a post-split basis the next day.

Second, stock splits generally don’t make stocks a greater or worse value. Just imagine a burrito being cut into small pieces. You’re still getting the identical amount of burrito, and the ingredients of that burrito haven’t modified.

Today’s stock traders could also be enthused because Chipotle stock could go up as more investors will seek access to it at its soon-to-be more cost-effective price. Then again, by the point you read this, the market’s excitement will probably already be priced into CMG stock.

Actually, the market’s excitement has been priced into the shares for some time now. Throughout the past 4 years, Chipotle’s share price has soared from $500 to almost $3,000. Moreover, Chipotle’s GAAP trailing-12-month price-to-earnings (P/E) ratio stood at around 63 even before today’s share-price jump.

Burritos are selling like hotcakes

In case you haven’t noticed, fast food has gotten pretty expensive over the past 12 months or two. One might assume that prime food prices would deter customer traffic at Chipotle, but the corporate’s fourth-quarter fiscal 2023 data proves otherwise.

Because it seems, the corporate’s comparable-restaurant sales increased 8.4% 12 months over 12 months, versus Wall Street’s call for 7.1% growth. Furthermore, Chipotle opened 121 recent restaurants during Q4. CEO Brian Niccol’s stated goal is to succeed in “7,000 restaurants in North America.”

Apparently, Chipotle’s customers are hungry for burritos regardless of their prices. The proof is in the outcomes as Chipotle’s quarterly revenue grew 15.4% 12 months over 12 months to $2.5 billion, which was consistent with analysts’ consensus estimate. Chipotle also reported quarterly earnings of $10.21 per share, up 27.3% 12 months over 12 months and ahead of Wall Street’s consensus forecast of $9.71 per share.

Chipotle cited the “advantage of menu price increases” in its press release, though its customers definitely wouldn’t consider price hikes to be a “profit.” If individuals are willing to pay more for those burritos though, then evidently, the worth increases will proceed to profit the corporate’s top and bottom lines.

In light of this, Chipotle’s P/E ratio could also be a little bit bit easier to swallow. Still, value-hungry investors might need to look elsewhere as Chipotle’s sales and income growth, while impressive, probably don’t justify the astonishing share-price rally that’s happened because the COVID-19 pandemic low.

Thus, even when CMG stock will soon be cut up into more digestible pieces, the valuation could also be too hot and spicy for some value-conscious investors to tolerate.

Disclaimer: All investments involve risk. On no account should this text be taken as investment advice or constitute responsibility for investment gains or losses. The knowledge on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.