Why Chipotle Stock Tanked Thursday Just After Its Stock Split
Why Chipotle Stock Tanked Thursday Just After Its Stock Split
Chipotle Mexican Grill (NYSE: CMG) has been one tasty quesadilla of a stock on the exchange over the years. The fast-casual restaurant chain operator didn't have a good session on the market Thursday, however. Its shares fell more than 5% in value, which wasn't unusual given what happened the previous day.
Stock-split indigestion
Chipotle investors started Wednesday with a much higher number of shares than they held previously. Of course, this was due to the 50-for-1 stock split that kicked in that morning.
That ratio is pretty high -- most stock splits are more in the 10-for-1 range or so -- but it feels like a good move given how pricey the restaurant operator became on a per-share basis. A cheaper stock is a more attractive one, and it's likely many investors piled into Chipotle recently in the hopes that its popularity would surge post-split.
Often with price-pushing events, when the event itself is over, many folks book the profits they made on the run-up. This quick, heavy selling tends to push a stock's price down. In the absence of any negative fundamental news for Chipotle, profit-taking is likely the main culprit for the Wednesday swoon.
More of the same
It's important to note here that, as with any stock split, the value of Chipotle stock did not change at all. Investors still held the same amount of stock in dollar terms as they had previously; the only changes were the number of shares and the price.
Given all that, no one should bail on Chipotle simply because it's on the other side of a big financial engineering effort. Believers in the company's business model might even pounce on the price weakness. After all, given Chipotle's enduing popularity, it probably won't last.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.