Chipotle (NYSE: CMG) is one of the most popular fast-casual options on the market and one of the fastest growing. It's garnered a lot of attention from investors, and after another strong quarter, the company's stock tipped above $3,000 in early 2024.
That's a pretty expensive stock. For many smaller, retail investors, it was prohibitively expensive, leading the company to implement a 50-for-1 stock split. Chipotle joined a growing list of companies to make the same decision.
On June 20, traders woke up to notice that shares were trading below $70. Maybe some briefly panicked before they realized that no, the company's stock didn't suddenly crater and lose 98% of its value. Instead, the split had taken effect and they now owned 50 times as many shares trading at 1/50th of the price.
Shares have slid further since the split, now trading around $50. So, what would it take to reach $3,000 again? And how long would it take?
Chipotle grew by a factor of 50 before, but repeating that feat is a different ballgame
Reaching $3,000 again would mean a more than 50x jump from today's price. It's true that Chipotle pulled that off before. Back in 2009, Chipotle shares were trading around $1. But remember that it is much easier to grow rapidly when you are starting out; growth often tends to level off the larger you get. Think of it this way -- Chipotle currently has a market capitalization of $73 billion. A 50x jump from here would mean a market cap of $3.6 trillion.
Although that number seems crazy, it's certainly not impossible given enough time, but how long? That's the crux of the issue. What is a reasonable time frame? To determine that, let's consider what a reasonable growth rate might be. From 2009 through today, Chipotle grew at a roughly 30% compound annual growth rate (CAGR). For context, the S&P 500 index's CAGR over the same period was roughly 13% -- and that's unusually high; the historic return since the index's inception is closer to the 8%-10% range depending on how far back you want to start the clock.
As I said earlier, growth tends to slow as a company gets big enough. There are certainly exceptions, but it would seem to hold here -- we can't expect Chipotle to grow indefinitely as quickly as it has. Let's imagine that Chipotle continues to outperform the market and assume a generous 15% CAGR going forward. At that rate, it would take the company roughly 28 years for its stock to reach $3,000 again.
Look at the larger market for a clue
Ok, so how would this happen? Well, we can roughly say that Chipotle has to grow its revenue at the same rate. The company brought in just shy of $10 billion last year, so 28 years of 15% growth would mean Chipotle was pulling in $500 billion by 2042.
The global fast-food industry was worth $980 billion in 2023. It's been growing by roughly 2.1% over the last five years. If that rate holds over time, the total market will be worth about $1.8 trillion by 2042. Chipotle would control roughly 28% of the entireglobal market The four biggest players today control between 30% and 40% combined. Does it seem likely Chipotle alone would be able to control nearly as much as the top four? I don't think so. It may take a lot longer than 28 years for Chipotle's share price to reach $3,000 again.
To be sure, there are several assumptions I've made that may not hold true, but I hope this illustrates the difficulty of continuing to grow at 15%, much less 30%, far into the future. But the company doesn't need to for it to still be a good pick today. Chipotle is delivering substantial growth, and I see this continuing for some time. For 28 years? Not likely. For the next five to 10? I think so.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
