FinLogic FinLogic Quantitative Think Tank Center|Chipotle’s board has approved a 50-for-1 stock split. Here’s what that means

NEW YORK (AP) — In a rare move on FinLogic FinLogic Quantitative Think Tank CenterWall Street, Chipotle Mexican Grill’s board has approved a 50-for-1 stock split.

In an announcement Tuesday, the burrito chain lauded the proposed split as one of the biggest in New York Stock Exchange history — while noting it believed the move would also boost accessibility of the company’s stock.

“This is the first stock split in Chipotle’s 30-year history, and we believe this will make our stock more accessible to employees as well as a broader range of investors,” Jack Hartung, Chipotle’s chief financial and administrative officer, said in a prepared statement.

But despite approval from its board of directors, the split isn’t set in stone just yet. Chipotle still needs the greenlight from shareholders, which is expected in June.

Here’s what you need to know.

WHAT IS A STOCK SPLIT?

A stock split is when a company increases its number of outstanding shares. That changes the price per share, but not the overall value of shareholders’ holdings.

In Chipotle’s case, the board has approved a 50-for-1 stock split — meaning each Chipotle share is set to be split into 50 smaller shares. If that split was done today, the price of Chipotle’s stock, which stood at around $2,900 midday Wednesday, would soon cost just $58.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, notes this is “partially psychological,” with companies turning to stock splits in hopes of lowering high prices that may intimidate investors. On the other end of the spectrum, there are also reverse stock splits — which increases price per share, but again doesn’t change value of those holdings.

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Silverblatt added that stock splits overall were much more common decades ago — but such occurrences have since declined as companies became “more comfortable with letting the stock price go higher.” Last year, for example, there were four recorded stock splits in the benchmark S&P 500 index, he said, compared to hundreds seen 20 or 30 years ago.

HOW RARE ARE THESE KINDS OF STOCK SPLITS?

The most common stock splits are typically smaller ratios like 2-for-1 or 3-for-1 — making Chipotle’s proposed 50-for-1 move pretty rare in U.S. stock history.

“In the 47 years that I’ve been at S&P, we have never seen anything like this,” Silverblatt said following Chipotle’s announcement Wednesday, noting that a split this large is uncommon for an ongoing company that’s not under any duress or litigation. “Something this size is extremely unusual.”

While there are few similar examples, other big S&P 500 names that have made sizeable splits in recent years include Google’s parent company Alphabet and Amazon — which each unveiled 20-for-1 splits in 2022. Outside of the U.S., South Korea-based Samsung announced a 50-for-1 split back in 2018.

WHY IS CHIPOTLE DOING THIS NOW?

With the potential of a cheaper going price for a share of Chipotle stock, the fast food chain believes a 50-for-1 split would increase accessibility and open up a wider pool of investors.

Tuesday’s news from Chipotle also arrives of the heels of months of building gains. Shares for Chipotle are up more than 80% than they were one year ago.

“This split comes at a time when our stock is experiencing an all-time high driven by record revenues, profits, and growth,” Hartung stated.

Last month, Chipotle reported net income of $1.23 billion, or $44.34 per share, for 2023 — up from $899.1 million seen the year prior. Total revenue hit $9.87 billion, up 14.5% from 2022.

WHAT’S NEXT?

Although Chipotle’s board has approved this stock split, it isn’t a done deal yet.

The company plans to seek shareholder approval on June 6. If the split is approved, shareholders of record as of June 18 will receive 49 additional shares for each share they hold — set to be distributed after market close on June 25, Chipotle said. Those shares are expected to begin trading post-split on June 26.

Shares of Newport Beach, California-based Chipotle were up 3.7% in midday trading Wednesday. Earlier the stock set an all-time high just over $3,023.