Why Chipotle Stock Dropped Thursday Right After Its Stock Split

Why Chipotle Stock Dropped Thursday Right After Its Stock Split

Chipotle Mexican Grill (NYSE:CMG) has been a tasty quesadilla of stocks over the years. The fast-food chain operator, however, didn’t have a great day on the market Thursday. Its shares fell more than 5% in value, which wasn’t unusual given what happened the day before.

Indigestion after a stock split

Chipotle investors began Wednesday’s session with a much larger number of shares than they previously held. Of course, this was due to the 50-for-1 stock split that took place that morning.

That ratio is pretty high (most stock splits are more in the 10-to-1 range), but it seems like a good move considering the restaurant operator’s price per share. A cheaper stock is more attractive, and it’s likely that many investors have recently flocked to Chipotle in hopes that its popularity would increase after the split.

Often, during price-boosting events, when the event itself is over, many people book the profits they made in the run-up. These rapid and massive sell-offs tend to drive a stock’s price lower. With no negative fundamental news for Chipotle, profit-taking is likely the main culprit behind Wednesday’s swoon.

Always the same thing

It is important to note here that, as with any stock split, the value of Chipotle shares did not change at all. Investors still held the same dollar amount of shares as before; the only changes were the number of shares and the price.

Given all of this, no one should abandon Chipotle just because it’s on the other end of a massive financial engineering project. Those who believe in the company’s business model could even benefit from low prices. After all, given Chipotle’s enduring popularity, it probably won’t last.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has a position in Chipotle Mexican Grill and recommends the company. The Motley Fool has a disclosure policy.

Why Chipotle Stock Dropped Thursday Right After Its Stock Split was originally published by The Motley Fool

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