Chipotle shares briefly surge past $3K — but will become more affordable for this reason

Chipotle Mexican Grill’s stock breached the $3,000 mark for the first time on record, rising as much as 8% on Wednesday after the burrito chain’s board approved a 50-for-1 stock split as the company looks to make the stock less expensive for potential investors.

Shares of the California-based company have rallied to record levels over the past year powered by strong earnings owing to solid demand for burritos and rice bowls among its relatively wealthier customer base.

The stock closed at $2,893, up 3.4%.

A stock split lowers the price of shares without affecting the company’s valuation, making them more affordable for individual investors.

Based on Tuesday’s closing price of $2,797.56, the company’s stock would trade at around $56 after the split. 

Chipotle has around 27.4 million shares outstanding.

If the split is approved at the upcoming annual meeting on June 6, its shareholders will receive an additional 49 shares for each share held.

As of Tuesday’s close, Chipotle had the fourth-highest-per-share value on the S&P 500 index.

Its market value was $76.71 billion.

The split, the first in its 30-year history, “will make our stock more accessible to employees as well as a broader range of investors,” said Chipotle’s Chief Financial and Administrative Officer Jack Hartung on Tuesday.

“They’re also trying to do what Walmart has done in the sense that they want to give employees more economic ownership,” said Thomas Hayes, chairman at hedge fund Great Hill Capital.

Retail giant Walmart undertook a 3-for-1 share split that went into effect beginning Feb. 26, making the shares more affordable to its employees, who have the option of buying the stock through payroll deductions.

“Chipotle’s stock split should ease liquidity in the stock given how high the share price has risen over the past years. Otherwise, the economics of the business remain just as compelling,” said Jim Sanderson, an analyst with Northcoast Research.

The fast-casual Mexican chain went public in January 2006 at $22 per share.

Its forward price-to-earnings multiple (P/E), a common benchmark for valuing stocks, is 49.72, higher than industry peers including Starbucks and McDonald’s that have a P/E ratio of 20.89 and 22.24 respectively.