Business

Why Chipotle Stock Fell Thursday Right After Its Stock Split

Profit taking was the activity of the day for investors, which caused prices to fall.

Chipotle Mexican Grill (CMG -5.24%) has been a tasty quesadilla of stock market action over the years. The fast-casual restaurant chain, however, did not have a good session in the market on Thursday. Its stock value fell more than 5%, which was not unusual given what happened the day before.

Split indigestion

Chipotle investors started Wednesday with a much higher number of shares than before. Of course, that was due to the 50-for-1 stock split that took place that morning.

This ratio is quite high – most stock splits tend to be around 10-to-1 – but it seems like a good move given the restaurateur’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 times when events drive prices higher, once the event itself is over, many people book the profits they made during the rally. These rapid and massive selloffs 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 drop.

More of the same

It is important to note here that, as with any stock split, the value of Chipotle stock 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.

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.

News Source : www.fool.com
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