By Evie Liu
Chipotle Mexican Grill is just different.
The stock was down 6% on Thursday even though the burrito chain is just days away from a stock split that ordinarily would be expected to boost the price. If the slide holds through the close, it would be the largest daily percentage loss since July 27, 2023, when it fell 9.8%.
The stock has soared 172% over the past two years, most recently hitting a record closing price of $3,427.61 on Tuesday.
While many competitors struggled in the first quarter, total revenue at the fast-food chain grew 14% from a year ago, while net income is up 23%. Same-store sales growth has been strong, and Chipotle has been continuously expanding its network of restaurants.
It is also a favorite on Wall Street. Two-thirds of analysts polled by FactSet have Buy ratings on the stock, and many have continued to raise their targets for the price as the stock has gone up.
Chipotle stock is set to go through a 50-for-1 split on Wednesday. Although splits don't change a company's business or the earnings associated with a given investment in the stock, they can boost the price over the short term. Shares of Chipotle will become more accessible to investors put off by the nearly $3,500 price tag.
The reason for Thursday's fall wasn't immediately clear. It is possible that some institutional investors with large positions are taking profits after the stock's tremendous rally.
In the first quarter, Bill Ackman's Pershing Square Capital Management, the largest hedge-fund shareholder of Chipotle, trimmed its stake in the stock by nearly 10%. But the restaurant chain remains Pershing Square's top holding, making up 20% of its portfolio, according to the firm's latest 13-F filing with the Securities and Exchange Commission.
Trading at 53 times forward earnings, Chipotle shares are expensive compared with other restaurant stocks. McDonald's, Starbucks, and Burger King owner Restaurant Brands are all priced at around 20 times the profits they are expected to generate in the next year.
A few other fast-casual restaurants were also seeing share prices plunge on Thursday after rallying for months. Sweetgreen stock was down 5.7%, Cava dropped 3%, and Wingstop declined 3.4%.
Chipotle has also caught some heat recently. Some social media users have complained that portions at its restaurants have become smaller while prices have continued to soar. The company says there have been no changes in its portion sizes.
Chipotle didn't immediately respond to a Barron's request for comment about the stock's slide.
"We have reinforced proper portioning with our employees," said Laurie Schalow, Chipotle's chief corporate affairs and food-safety officer, in a statement in late May. CEO Brian Niccol even took to TikTok to teach customers how to signal to employees when they want bigger portions.
That response seems to have caused an additional backlash and more mocking on the internet. If consumer' views continue to worsen, it could hurt Chipotle's revenue in the coming quarters.
Write to Evie Liu at evie.liu@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 20, 2024 15:24 ET (19:24 GMT)
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