Is Chipotle Mexican Grill Stock (CMG) Still a Buy? 5 Key Reasons to Consider

Chipotle Mexican Grill (CMG) stock reached a record high of $68.55 on June 18, 2024, fueled by investor enthusiasm for the fast-casual chain’s impressive comparable-store sales growth, robust profit margins, and ambitious expansion plans.

However, since that peak, the stock price has retreated by approximately 15%. An initial dip occurred last August following the departure of its celebrated CEO to Starbucks. While there was a recovery towards the end of the year, concerns over persistent inflation and potentially slower interest rate cuts have led to another pullback. Despite these fluctuations, there are compelling reasons to believe that Chipotle Mexican Grill Stock remains a strong buy opportunity. Here are five key factors that support this outlook.

1. Consistent Comparable-Store Sales Growth

After experiencing flat comparable-store sales (comps) in 2015 and declines in 2016 and 2017, Chipotle faced challenges from increased competition, a lagging mobile strategy, and food safety incidents that negatively impacted its brand image.

However, Chipotle successfully turned the tide, achieving positive comps growth starting in 2018 and continuing this trend through 2023. The company anticipates maintaining this positive momentum with mid to high single-digit comps increases projected for 2024. This is particularly noteworthy as many competitors are facing growth headwinds due to inflationary pressures. Investors are keenly awaiting the company’s fourth-quarter earnings report, scheduled for release after market close on Tuesday, Feb. 4, for further insights into this performance.

2. Strong Leadership Continuity After CEO Transition

Much of Chipotle’s remarkable recovery is credited to Brian Niccol, who assumed the CEO role in 2018. Niccol spearheaded a turnaround strategy that included significant upgrades to the mobile app, the introduction of convenient grab-and-go options, an expanded rewards program to enhance customer loyalty, improved data collection for personalized marketing, and the strategic implementation of drive-thru “Chipotlanes” to optimize order efficiency.

Niccol also made the strategic decision to reduce reliance on heavy discounting and promotions, redirecting those resources into impactful marketing campaigns aimed at regaining customer trust and loyalty following the earlier food safety crises.

Consequently, investors initially reacted negatively to his unexpected departure to lead Starbucks. However, the appointment of Scott Boatwright as the new CEO provides reassurance of leadership continuity. Boatwright, who previously served as Chipotle’s chief operating officer since 2017, was deeply involved in the development and execution of these successful turnaround initiatives. This suggests a high likelihood of continued strategic consistency and sustained growth under his leadership.

3. Strategic New Restaurant Openings

While some restaurant chains resort to aggressive store openings as a tactic to offset slowing comps growth and inflate revenue figures, this approach is often unsustainable if new locations fail to achieve year-over-year sales growth after maturing.

Chipotle distinguishes itself by consistently growing its comparable-store sales while simultaneously expanding its restaurant footprint. By the end of the third quarter of 2024, Chipotle operated 3,615 company-owned restaurants, an increase from 3,437 at the end of 2023. The company projected a year-end total of 3,722 to 3,752 locations for 2024 and ambitious plans to open 315 to 345 new restaurants in 2025. This balanced growth strategy, combining comps increases with strategic expansion, underscores the underlying strength of the Chipotle brand and its market appeal.

4. Expanding Margins Despite Inflationary Pressures

The inflationary environment has significantly impacted the restaurant industry, with many operators experiencing a contraction in operating margins due to rising commodity and labor costs. However, Chipotle has demonstrated remarkable resilience in this challenging landscape. The company’s restaurant-level operating margin has expanded from 18.7% in 2018 to an impressive 26.2% in 2023, further increasing year-over-year to 27.3% in the first nine months of 2024.

Chipotle has effectively leveraged strategic price increases to mitigate inflationary pressures and protect its profitability. This success indicates significant pricing power within the competitive fast-casual market, suggesting a strong brand loyalty and customer willingness to absorb price adjustments.

5. Reasonable Valuation with High Growth Potential

Analysts project robust growth for Chipotle, estimating a compound annual growth rate (CAGR) of 14% for revenue and 21% for earnings per share (EPS) between 2023 and 2026. This positions Chipotle as one of the fastest-growing restaurant chains globally, with substantial runway for future expansion, particularly in European and Middle Eastern markets. Furthermore, the company aims to nearly double its North American store count to approximately 7,000 locations in the coming years.

While a forward adjusted earnings multiple of 44 might appear high at first glance, it becomes more compelling when considered in the context of Chipotle’s exceptional long-term growth potential. Finding a well-established restaurant chain that combines reliable comps growth, consistent store expansion, expanding margins, and a powerful brand is rare. Chipotle Mexican Grill appears to effectively tick all these boxes, making Chipotle Mexican Grill stock a compelling investment consideration for long-term growth investors.

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