Chipotle's 50-for-1 stock split will only drive demand: Analyst
Chipotle's (CMG) board of directors has approved a 50-for-1 stock split, allowing shares to become more accessible to staff and investors. The stock surpassed the $3,000 per share benchmark on Wednesday morning.
Wedbush Securities Managing Director Nick Setyan joins Yahoo Finance to give insight into the decision from the board.
Setyan explains how this may impact markets: "I don't know if it's going to change the inclusion in indexes. I know that a lot of algorithms, et cetera, they get annoyed when this happens just because there's a little more volatility that they have to put into their models if you're trying to arbitrage the stock versus the indexes, et cetera, but essentially, at the end of the day, it's not going to impact inclusion in indexes, et cetera. So, really, I mean, net-net, it just overall increases demand and trading in the stock."
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
Video Transcript
BRAD SMITH: Everyone, we're also continuing to watch shares of CMG, Chipotle Mexican Grill. Chipotle could get a whole lot cheaper. The board of the fast casual restaurant chain approving a 50-for-1 stock split in order to make shares more accessible to staff and investors. And we're seeing the stock topped $3,000 in share in reaction to this news. If you split the stock at current levels, it would trade at around 60 bucks a share.
So, here with more, we've got Nick Setyan, who is the Wedbush Securities Managing Director. Nick, great to see you, as always. I want to get your perspective here. And we know that there are a ranging amount of reasons perhaps for this decision in the board moving forward with this, and then it's going to come to shareholders voting to approve. But what does this do for the average investor, the retail investor out there? Does it change the propensity to buy into Chipotle?
NICK SETYAN: And when we've seen this with-- with other splits, you know, it definitely does.
[CLEARING THROAT]
Excuse me. So the-- the demand for Chipotle share is definitely going to go up later this year post this split and-- and mainly driven by retail investors. They tend to, you know, view lower-priced stocks as-- as more attractive, and, you know, a lot of times it actually meets their threshold. So if someone's buying, let's say, $500 a month or $1,000 a month, well, you can't buy a Chipotle if you can't get fractional shares. So it just makes it more available, and the demand goes up.
SEANA SMITH: Yeah. And Nick, there's absolutely no change here, just in terms of the fundamentals of the business. But just a question for you. Just in terms of that interest there going off of that, obviously making it more affordable, but the inclusion here in indexes potentially the broader exposure, how do you view that as an analyst in terms of what it could potentially boost? How big of a boost it could be for the stock in the longer term?
NICK SETYAN: I don't know if it's going to change the inclusion in-- in-- in indexes. I know that, you know, a lot of algorithms, et cetera, they get annoyed when this happens just because there's a little bit more volatility that they have to, you know, put into their models, you know, if you're trying to arbitrage the stocks versus the indexes, et cetera. But essentially, at the end of the day, it's not going to impact inclusion in-- in indexes, et cetera. So, really, I mean, net-net, it just overall increases demand and trading in the stock.
