Chipotle shares will be splitting soon — a change that is purely cosmetic, but can lead to outperformance regardless, if history is any guide. The fast-casual Mexican chain announced that it would enact a 50-to-1 stock split , effective in June, sending shares higher by about 8% on Wednesday. They could have more to go. Stock splits tend to change little about the company’s actual fundamentals or financial performance, besides impacting some “per share” measures. They are done mainly to encourage retail investor ownership — thus, increasing demand — by making full shares appear more affordable. But despite being a largely immaterial change, splits have historically indicated a rally ahead, according to Morgan Stanley data. History shows it’s better to buy the stock on the announcement than after the split takes place — which, in this case, is slated for June — to reap the most upside. Outperformed 6 months out Morgan Stanley looked at the post-split performance of stocks between 2000 and 2021. Shares of an average S & P 500 company that announced a stock split outperformed the index by 2.4% between the date of the announcement and the action taking effect. Those stocks were positive in that period about 68% of the time. And six months from the split taking effect, the average stock outperformed the broad index by 4.7%. That trend was even stronger for those that were already beating the market, the data showed. This bodes well for Chipotle, which has climbed more than 20% in 2024 and 70% over the last 12 months. CMG .SPX 1Y mountain Chipotle vs, S & P 500, 1-year Baird analyst David Tarantino said the move should create a short-term bounce for shares. Tarantino maintained his outperform rating following the announcement. “The stock split theoretically does not change the underlying economic value of CMG,” he said. But, “we view this announcement as a positive for the shares in the sense that the move should aid trading liquidity and ultimately broaden the investor audience.” Post-announcement outperformance also proved to be more intense for stocks like Chipotle that were trading at over $500 per share going into the split. For reference, Chipotle closed near the $2,800 price mark on Tuesday. To be sure, Morgan Stanley said the rise of quick and easy trading has made the impact of a stock split on a company’s shares wane over time. That’s in part because everyday investors can now snap up fractions of shares through their devices, though expensive names can still be daunting. Clarification: This story has been updated to clarify Chipotle’s stock split will take effect in June.
