Chipotle Investor Alert: Overvalued and Overhyped Ahead of Stock Split?

Stocks to sell

Fast-casual restaurant chain Chipotle Mexican Grill (NYSE:CMG) is known for purveying overstuffed burritos. Yet, some customers are reportedly getting less than what they expected — and Chipotle stock may be too richly valued for some investors’ taste.

Granted, there’s a major event coming up soon that will affect the Chipotle share price. On other hand, it’s already public knowledge and many people have already taken a stock position in Chipotle. So, don’t assume that you’re getting a good value if you invest in Chipotle now.

A Flippant Response to a Serious Problem

Reputation is everything in the restaurant industry. And unfortunately, Chipotle Mexican Grill is getting a reputation on social media for shrinking portion sizes.

A report from Fortune quoted social-media postings in which customers described Chipotle’s allegedly “terrible” portions and complained about the restaurant “skimping [on] rice and beans on veggie bowls.”

Some customers are reportedly filming Chipotle workers as they prepare orders in hopes of getting bigger portions.

That’s not good for Chipotle’s reputation, and one might hope that CEO Brian Niccol would take this issue 100% seriously. However, Niccol seemed to suggest to Fortune that customers can get bigger portions if they give a certain look by widening their eyes and nodding their heads.

I don’t know if Niccol is being serious or not, but it’s a flippant response to a serious problem. Hopefully, after several price-hike announcements since 2021, Chipotle can actually clarify and/or rectify the portion-size issue with its customers.

Don’t Try to Front-Run the Stock Split

Another news item surrounding Chipotle Mexican Grill is the company’s upcoming 50-for-1 stock split. Just to recap, Chipotle’s shareholders of record as of June 18 “will receive 49 additional shares for each share held.” Moreover, these will be distributed after the stock market closes on June 25.

In a highly efficient market, it makes little sense to front-run the upcoming stock split. Any perceived benefits have, I believe, already been priced into Chipotle shares.

It certainly wasn’t a secret that Chipotle’s shareholders would vote on the stock split and that the split would probably be approved. Now, as the share split looms, Chipotle appears to be very richly valued.

To quantify this, note that Chipotle’s GAAP-measured trailing 12-month price-to-earnings ratio is 67.19x. To provide a basis for comparison, the sector media P/E ratio is 18.25.

Chipotle Stock: Some Food for Thought

Chipotle Mexican Grill’s reputation is on the line as some customers reportedly aren’t happy with the restaurant’s portions. It’s a major issue, and investors should insist that Chipotle’s CEO take it 100% seriously.

As for Chipotle’s upcoming share split, it’s already known and was probably widely anticipated. Prudent investors may feel that Chipotle stock is overpriced, so there shouldn’t be an urgent need to buy it now.

Instead, look for a more reasonably valued company — one that won’t leave a bad taste in your mouth.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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