Chipotle Mexican Grill Inc. (CMG) may have started as an unknown burrito restaurant, but since its humble beginnings, it has become a fast-food super giant that threatens the market share of the very chain that funded its initial growth. If you had invested just $1,000 during Chipotle's initial public offering (IPO) back in January 2006, that investment would be worth $46,664 in May 2020!
- Chipotle Mexican Grille is a hugely successful fast food chain serving Mexican-style cuisine.
- One part of the McDonald's empire, Chipolte IPO'd in January 2006 with a price of $22 and closed on its first day of trading at $42.20.
- If you had purchased $1,000 of Chipotle for $22 at its IPO it would be worth more than $46,664 as of May 2020.
The Chipotle Story
Once under the same ownership as the McDonald's restaurant chain, Chipotle has quickly become the most popular casual dining choice for millions of people across the nation. That unstoppable popularity is reflected in its ever-climbing stock price.
Chipotle founder, Steve Ells, originally used a $75,000 loan from his father to get his first restaurant off the ground in the early 1990s. At a time when American casual cuisine was dominated by burgers and pizza, a build-your-own burrito restaurant that used only fresh, quality ingredients was a big gamble. It may have been unorthodox, but Ells' fresh take on fast-casual dining caught on like wildfire, surpassing projected revenues even in the restaurant's first year. Clearly, the gamble paid off.
The Meteoric Rise
Like Google, Amazon, Netflix and Starbucks, Chipotle's stock is one of those investments everyone wishes they'd gotten in on at the very beginning. In fact, as of May 21, 2020, Chipotle's stock price has increased a whopping 2,060% since it went public in 2006.
The first Chipotle opened its doors in 1993, but the company did not offer shares of stock to the public until much later, instead relying on private investment from friends and family. Once it went public, Chipotle already had the benefit of budding popularity on its side. The IPO price was set at just $22 per share, but by the end of trading on its first day of trading it had doubled to close at $44.
Since its IPO, Chipotle's stock has enjoyed nearly uninterrupted gains. It faltered in 2008, as did most of the stock market, and again in 2012. However, the stock quickly regained lost ground after both dips and surged to new heights. It enjoyed an especially aggressive spike in July 2015, following an impressive quarterly report, jumping to a then all-time high of $742.23. The stock, however, struggled through 2016-2017, erasing more than half of its price and hitting an interim low of around $255 per share. The years 2018-2019 have been a big positive turnaround, with the company's stock soaring to new all-time highs of around $800 per share.
If you had been one of the lucky few who knew to buy into Chipotle when its stock was a mere $22 per share, your $1,000 investment could have purchased 45.45 shares (assuming fractional shares were available). At today's market price, those shares would be worth $46,664 as of May 2020.
This might not be as healthy a nest egg as you would have generated if you'd invested that $1,000 in Amazon's IPO, which would have grown to more than half a million dollars! Nevertheless, this is still amazing growth in under 10 years.
If instead you bought the stock when it opened as a listed company for the first time on an exchange at $42.20 you would have been able to acquire just 23.6 shares - still growing to an impressive $24,230 today.
The chief reason Amazon's returns are so impressive is because its stock split three times within its first three years. Chipotle has yet to announce a stock split, but with prices continuing to climb, its first split could be just around the corner. When companies that are doing well need to remain attractive to individual retail investors who might be scared off by sky-high stock prices, a stock split is the easy answer.
A stock split occurs when the company decides to multiply the number of shares outstanding, while simultaneously reducing the value of all shares by the same factor. An investor who owns 100 shares at $700 per share would have 200 shares at $350 per share after a two-for-one split, for example.
At first blush, stock splits don't seem overly exciting because the total value of the shares remains stable. However, stock prices generally regain their previous highs after a split and often exceed them.
A Chipotle split would bring stock prices down to more manageable levels, attracting new shareholders and likely fueling further growth. Though the restaurant's gains aren't yet quite up to Amazon's standards, it seems Chipotle's moment in the sun is far from over.