As Chipotle's stock split takes hold, here's what history has to say

MW As Chipotle's stock split takes hold, here's what history has to say

By Emily Bary

Other S&P 500 companies that have done stock splits this year saw nice boosts after announcing splits but muted action after they took effect

Chipotle Mexican Grill Inc. no longer boasts a $3,000-plus share price, as it began trading Wednesday for the first time since conducting a massive 50-for-1 stock split.

"Today we celebrate the remarkable achievements of our employees by increasing ownership accessibility for team members and new investors," Chief Executive Brian Niccol said in a Wednesday release.

But will Chipotle $(CMG)$ achieve its stated goal of attracting new investors with a more accessible stock price? The results are mixed, based on past stock splits.

First, you can look at the companies in the S&P 500 SPX that have split their stocks so far this year. Ten companies in the index have announced, while six, including Chipotle, have enacted their splits. Those six saw an average 9.9% stock bump from the time of the split announcement to the time when the split took place.

Chipotle shares saw one of the biggest rallies between the announcement and enactment date, rising 18.4% in that three-month span. Subtract Chipotle and the average gain for the group was 11.8%.

Other companies were able to carry out their splits more quickly. Nvidia Corp. $(NVDA)$ saw its stock surge 27.3% in less than three weeks between the announcement of the split and the first day of trading after the split.

Related: Will Nvidia spur a stock-split frenzy? Why companies have been waiting longer to split.

But the grouping hasn't seen such strong stock performance in the wake of their splits. Excluding Chipotle, the average price move from the split-enactment date to Tuesday's close was a 0.4% decline for the five S&P 500 stock splitters of 2024. That includes Nvidia, which saw a 4.3% bump since its split.

Chipotle shares were down 1.5% in Wednesday morning trading.

Analysts at Cboe Global Markets also found "split" results when looking at a broader set of data.

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"On average, stock splits do not lead to increased liquidity that is proportional to the split ratio and appear to lead to a decrease in investors' overall capital exposure to the split security," Cboe analysts said in a 2022 report. "However, it is clear that stock-split events may drive additional participation from retail investors."

The analysts found that "splitting a security does not necessarily increase liquidity or attract investors' interest proportionally to the ratio at which the security was split," though they said that when companies with larger market capitalizations do splits, they can see growing retail-investor participation. (Chipotle has a nearly $90 billion market cap.)

After making split adjustments, the Cboe team saw that median trading volume didn't rise in a meaningful way after a split. There was also a notable drop in options activity.

"This evidence contradicts the affordability theory," the analysts said.

See also: Chipotle is a top Goldman pick as competition shifts toward consumer value

-Emily Bary

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June 26, 2024 10:47 ET (14:47 GMT)

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