History says the S&P 500 will rise in 2025. 1 split stock to buy before it does.

THE S&P500 (INDEXSNP: ^GSPC) has been in the midst of a crisis since early last year, fueled by developments in artificial intelligence (AI), the rebounding economy, uncontested elections and recent interest rate cuts from the Federal Reserve. After gaining 24% in 2023, the overall index is up about 28% so far in 2024 (as of this writing). History suggests that the market race will likely continue until 2025.

The current rally began on October 12, 2022, and while every bull market is different, history can be instructive. On average, bull markets usually last more than five years. Since we have just entered the third year of the current rally, it is quite possible that the S&P 500 will continue to gain ground in 2025.

There is more. Over the past 50 years, the S&P 500 has generated gains 73% of the time. In the years since consecutive gains of more above 20%, the S&P index rose 12% on average, suggesting that the recovery is poised to continue.

Stock splits have seen a resurgence in recent years. This has prompted investors to take a new look at companies that engage in stock splits, as the move is typically the result of years of consistent revenue and profit growth. One of these companies is Chipotle (NYSE:CMG). Since its IPO in early 2006, the stock has returned 7,360%, leading to a massive 50-for-1 stock split earlier this year – the first in the company’s history.

Despite gains of this magnitude, there is every reason to believe that Chipotle’s growth will continue into 2025. Read on to find out why.

Image source: Getty Images.

At the top of the category he pioneered

Before Chipotle opened its first restaurant in 1993, the concept of fast casual dining did not exist. By focusing on higher quality food delivered quickly, the company has changed all that. Customers responded to Chipotle’s fresh ingredients and “food with integrity” mantra, and the rest, as they say, is history.

Consistent growth has been a hallmark of the company’s path to success, and there is every reason to believe that this trend will continue. Chipotle is on track to deliver double-digit revenue and profit growth this year and open about 300 new locations, 80% of which feature a Chipotlane.

The aforementioned Chipotlane approach provided a boost to the company’s growth. By installing dedicated pickup lanes for mobile orders, Chipotle supercharged its digital strategy by attracting its highest-volume customers while reducing congestion at its checkout counters. This strategy has proven to be extremely effective, increasing sales and profit margins.

Chipotle has pivoted to mobile ordering, which has become a significant growth driver. The company surpassed 40 million Rewards members earlier this year, who are typically among Chipotle’s most trusted customers. As a result, digital ordering growth continues to outpace restaurant sales, amounting to 34% of food and beverage revenue in the third quarter.

The company strives to expand internationally, with several dozen sites around the world. Additionally, while Chipotle had more than 3,600 restaurants at the end of the third quarter, management is targeting 7,000 locations in North America. Add to this its largely untapped international opportunities, and the potential for future growth becomes clear.

You only need to look at Chipotle’s financial results to see that its various strategies are paying off. In the third quarter, Chipotle generated revenue of $2.8 billion, up 13% year over year, resulting in diluted earnings per share (EPS) of $0.28, up 22%. It’s always a good sign when profits are growing faster than revenue, because it shows that the company has achieved the scale necessary to leverage its existing assets, thereby increasing its profitability.

Data by YCharts

A word on valuation

The evidence suggests that Chipotle has a long growth road ahead, but some investors might be turned off by the company’s high valuation. After all, the stock currently sells for 61 times earnings, compared to a multiple of 31 for the S&P 500. However, taking a step back can offer important perspective.

Over the past decade, Chipotle’s average The price-to-earnings (P/E) ratio is around 83, as the chart illustrates, well above its current level of 61, suggesting the stock is historically cheap. It’s also worth noting that over the same period, Chipotle has gained 404%, more than double the S&P 500’s 200% gains, illustrating why it deserves a premium.

Overall, this shows why Chipotle is a buy heading into 2025.

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Danny Vena holds positions at Chipotle Mexican Grill. The Motley Fool posts and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: Short December 2024, $54 at Chipotle Mexican Grill. The Motley Fool has a disclosure policy.