Investors should be cautious with overvalued stocks like Chipotle and MicroStrategy

From Nasdaq
September 11, 2024 04:41:00 am:

The rise of artificial intelligence has contributed to Wall Street’s stock indexes hitting record levels, but stock-split euphoria has also played a significant role in boosting valuations. Forward stock splits, like the 10-for-1 splits announced by Nvidia, Broadcom, and Super Micro Computer, are generally preferred by investors. Meanwhile, reverse splits are typically seen as a sign of operating weakness.

One company that recently completed a historic 50-for-1 split is fast-casual restaurant chain Chipotle Mexican Grill. Despite its reputation for quality ingredients and limited menu, Chipotle’s current valuation at 42 times consensus earnings per share for 2025 seems excessive. The company’s organic growth rate does not fully support this high valuation, raising concerns for investors.

Another stock that appears to be priced for perfection is MicroStrategy, a software company with a significant portion of its market cap tied to Bitcoin holdings. Investors have placed a substantial premium on MicroStrategy’s Bitcoin portfolio, ignoring the risks associated with this strategy. The company’s software segment has also seen declining sales, raising additional concerns about its overall valuation.

In summary, while stock splits have been a key factor in boosting valuations for some high-profile companies, investors should proceed with caution when considering investments in companies like Chipotle Mexican Grill and MicroStrategy, which may be priced for perfection. It’s important to carefully evaluate the fundamentals and growth potential of these stocks before making any investment decisions.

Read more at Nasdaq: 2 Stock-Split Stocks Not Named Nvidia That Are Priced for Perfection